Half of Seoul offices now over 30 years old amid limited new supply

About half of the office buildings in Seoul’s major business districts are over 30 years old, falling short of demand for modern and high-end workspaces – particularly from young employees who increasingly factor office location into their job decisions.

The lack of new A-grade and prime office supply has driven rents higher, as new office construction plans in Yeouido and Gangnam face delays due to constrained project financing, rising land prices and increased labor costs.

Some 47% of office buildings with a gross floor area of 16,500 square meters or more in Seoul’s three business districts – central, Gangnam and Yeouido – were built 30 years or more years ago as of the end of 2024, according to Seumter.

Only 9% of the offices in the three business districts are 10 years old or newer.

Seumter is an administrative platform operated under the Ministry of Land, Infrastructure and Transport, overseeing housing and building management.

Across Seoul, 58% of offices are over 30 years old. They are classified as deteriorated under the nation’s Urban Maintenance Act.

That compares with the Tokyo office market, where 19% are 10 years or newer, with 18% built more than 40 years ago.

NEW SUPPLY

No new office supply has been scheduled soon in Yeouido, South Korea’s financial hub, since the completion of TP Tower in the second quarter of last year.

In Gangnam, new offices are expected to be built near Gangnam Station around 2028. In contrast, new supply is concentrated in the central business district, including developments near the base of Mt. Namsan close to Myeong-dong Station.

Property developers forecast delays in some construction, redevelopment and renovation projects.

“A few construction projects have seen sharp increases in costs, including land purchase prices,” said an official at a property development company. “A substantial number of these projects will be delayed as bridge loans are not translating into full project financing."

According to JLL, a global real estate services firm, 41% of its survey respondents moved to larger office spaces in the first quarter of this year.

RENTS

Prime offices, or those measuring 100,000 square meters or more in gross floor area, make up only 0.6% of the total office supply in Seoul’s three major business districts.

The lack of supply drove A-grade office rents up 6.91% on-year to 110,000 won ($71) per one pyeong, or 3.3 square meters, in the three business districts as of the end of the fourth quarter of 2024, according to CBRE, a commercial real estate services company.

A-grade office buildings refer to structures with a floor area of 33,000 square meters or more. One pyeong is a unit of measurement of a structure in Korea and is equal to 3.3 square meters.

By district, Gangnam and Yeouido saw an on-year increase of 12.74% and 16.03% in rents, respectively, over the same period.

Rents for prime offices in the three districts exceeded 160,000 won per 3.3 square meters.

“In the past, one person typically occupied nine square meters of space. Today, that should be at least 13 square meters,” said the head of a Korean property development firm.

“We also need to consider shared spaces like rest areas and standards for facilities such as elevators and others, which are becoming important,” he added.

VACANCY RATES

The average vacancy rate at A-grade offices in the major business districts is 1.9% as of the end of December last year.

In Gangnam and Yeouido, the vacancy rates stand at 2.4% and 3.4%, respectively.

“We want to move into larger offices, but there aren’t enough new, spacious places available,” said an executive at an IT company. “Some of the younger employees in their 20s and 30s will quit if we move outside the major business districts, so it’s difficult to move further out.”

Meanwhile, some office sales are faltering as rising redevelopment and renovation costs weigh on investor sentiment. 

However, a CBRE survey conducted at the end of last year found that 79% of respondents investing in the Asia-Pacific region expressed their willingness to raise exposure to the Korean office market in 2025.

In 2024, foreign investment in the South Korean commercial property market reached 2.6 trillion won, with 1.7 trillion won directed toward office buildings, according to a CBRE report released on Monday.

Experts advise that new large-scale mixed-use developments and a loosening of regulations on real estate investment trust (REIT) financing would revive the supply of new large office spaces.

The domestic REIT market was valued at 8 trillion won as of the end of September last year, far smaller than the US market at 2,050 trillion won and Japan’s at 138 trillion won.

Currently, foreign ownership of Korean REITs is capped at 50%.

Write to Young-Yeon Kang and In-Hyeok Lee at yykang@hankyung.com
 

Yeonhee Kim edited this article.