Seoul property prices rise at world's fastest rate

The commercial real estate market in Seoul saw the fastest rate of price growth among all the gateway cities in the world over the past 12 months, with its transaction volume surpassing pre-pandemic levels in the first half of this year, according to Real Capital Analytics (RCA).

Institutional investors' appetite for prime office space in Seoul surged during the pandemic era, as the base unit area value of Seoul offices remains below the level of other global cities.

"Of all the gateway cities in the world, Seoul now has the fastest commercial property price growth, at over 20% throughout the past 12 months, driven largely by the rapid rise in office pricing," RCA said in a statement on Wednesday.  

The average office price in Seoul's traditional central business district (CBD) has climbed 47% since the end of 2019. During the period, grade-A office prices in Gangnam, the capital's most upscale district, have spiked almost 40%.

Thanks to new office demand from e-commerce players and game developers such as Coupang Corp. and Krafton Inc., the vacancy rate of grade A office buildings in Gangnam declined to 8.6% in the second quarter of this year, versus 12.8% three months before, according to JLL, a real estate services company.

By country, South Korea was one of few markets in the Asia Pacific region where commercial property deal volumes exceeded pre-pandemic levels in the first half of the year. In the April-June period, commercial property transactions in South Korea picked up by 36% to $5.5 billion from a year earlier, according to RCA's Asia Pacific Capital Trends report released on Wednesday.

That compared with the 11% year-on-year increase to $40.3 billion in second-quarter commercial property sales in the Asia Pacific. That marked a third consecutive quarter of a year-on-year increase in the region's commercial real estate transaction volumes.

In contrast, Japan was the only country in the region to post a decline in second-quarter commercial property sales, which dropped 47% year-on-year to $5.5 billion. 

Cross-border investors accounted for one-third of all commercial property investments in the Asia Pacific in the second quarter. That means Asian real estate investors focused more on deals in the region than in the US and Europe for the first time since the second quarter of 2019, RCA added. 

In the office sector, CBD office pricing was broadly stable at the regional level, but the price gap widened between prime and secondary properties, in particular in Seoul, Sydney and Tokyo.

In Seoul, the Pinnacle Yeoksam tower, located in Gangnam, is set to be sold at 40.1 million won per pyeong, or 3.3 square meters, for a total of 175.6 billion won later this year. It is poised to become the country's most expensive office building by pyeong, Korea's base measuring unit for area.

"It remains to be seen how much longer these lofty levels of growth can be sustained, but for the moment office prices on a per-square-foot basis remain well below the levels of other global cities,” Benjamin Chow, RCA's Head of Analytics for Asia, said in the statement.

In the retail property sector, South Korea is one of the three countries in the region where real estate deal volumes exceeded pre-pandemic levels in the second quarter, along with Australia and China.

South Korea ranks fourth with $11.2 billion worth of first-half commercial property sales, after China, Australia and Japan. For the first half of 2021, commercial real estate transactions in the Asia Pacific climbed 8% to $77.6 billion from a year earlier.

Write to A-young Yoon at youngmoney@hankyung.com
Yeonhee Kim edited this article.