Korean commercial real estate market to show slow recovery in H2

Global investors may bet on high-quality real estate in Korea as they believe prices have bottomed out, IGIS says

Gangnam Business District in Seoul 
Gangnam Business District in Seoul 
Myung-Hyun Han 1
2024-07-31 18:06:30 wise@hankyung.com
Real estate

South Korea’s commercial real estate market will post a slow recovery in the second half of this year due to rate cut delays and no big corrections in commercial real estate prices, according to Seoul-based IGIS Asset Management Co.’s report on Wednesday.  

Meanwhile, Seoul's office market was more robust than other global major cities' in the first quarter of this year, said IGIS citing data from Real Capital Analytics (RCA).

The office market in Seoul showed a 4.4% increase in RCA’s commercial property price indexes (CPPI) for the first quarter compared with a year-earlier period, while Washington D.C., New York, San Francisco and London posted drops of 28%, 4%, 11% and 16.5%, respectively, in the same period.

The CPPI for Seoul offices rose as new investments in Korean commercial real estate are concentrated in office buildings, which make up some 60% of all transactions in the market. Investors in hopes of rate cuts bet on prime offices in Korea, and there were no price corrections due to strong demand for offices in major business districts, IGIS said.

IGIS forecasts that investors will continue to favor large office spaces, or those with at least 33,000 square meters of floor area. Such big offices can secure high-quality tenants, extensions or renewal of contracts despite their rent per square meter being about 38% more expensive than other offices.

Overseas institutional investors may more actively bet on high-quality real estate in the second half as they believe prices have bottomed out, while Korean investors will take a more cautious stance as the price corrections haven’t been as dramatic as they expected, IGIS added.

Real estate investors should reconsider strategies to boost asset value to overcome challenges in fundraising and pricing, IGIS said. They need to seek portfolio diversification for value creation, particularly in real estate development projects, given more constraints in profitability due to increased financing and construction costs, it added.

Write to Myung-Hyun Han at wise@hankyung.com

Jihyun Kim edited this article.
#office market Korea #Korea commercial real estate market #IGIS Asset Management #Seoul office market #RCA CPPI Seoul

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