Seoul’s Office Market Outperforms APAC Peers Amidst Transaction Volume Dip

In the dynamic landscape of Asia-Pacific’s office markets, Seoul stands out for its resilience and relative stability, as indicated by recent data from Savills. Despite a decline in annual office transaction volume, Seoul’s performance outpaced other major cities in the region like Tokyo, Singapore, and Shanghai.

According to Savills’ report, Seoul witnessed an annual office transaction volume of KRW9.3 trillion in 2023. While this represented a 30% decrease from the previous year’s figure of KRW13.4 trillion, it remained comparatively robust considering the challenging global economic environment.

Seoul’s resilience can be attributed to several factors, foremost among them being its high office occupancy rates. Despite the widespread adoption of remote work, South Korea maintains one of the highest occupancy rates in the region, underscoring the strength of its leasing market.

Strategic investors played a pivotal role in Seoul’s office market dynamics in 2023. With office space at a premium and vacancy levels at historic lows, investors opted for direct investment in prime properties to secure space for their operations. This trend was exemplified by key transactions such as Nexon’s acquisition of Autoway Tower (GBD), Hyundai Motor Company’s investment in Scale Tower (GBD), and the National Credit Union Federation of Korea’s stake in Tower 8 (CBD). Given the anticipated continuation of low vacancy rates in the near term, this trend is expected to persist throughout 2024.

While some transactions in 2023 experienced price corrections, with final prices slightly lower than initial bid prices, this did not dampen the overall market sentiment. For instance, Concordian, a notable transaction in Q2/2023, saw a 7% decrease from its initial bid price, while Yongsan the Prime Tower, concluded in Q3/2023, reflected a 14% price decrease compared to earlier negotiations. Nevertheless, the upward trajectory of rents contributed to an overall increase in gross cap rates, estimated to be in the mid-to-high 4% range by year-end.

In summary, Seoul’s office market continues to exhibit resilience and attractiveness to investors despite broader economic challenges. With robust leasing demand, scarcity of office space, and strategic investments driving market dynamics, Seoul stands as a beacon of stability amidst regional fluctuations in the Asia-Pacific office sector.