Office: Overall Grade A office vacancy in Q3 fell 0.2 pp q-o-q to record 2.2%. The vacancy rate fell in the CBD submarket, where no new supply combined with several new lease contracts, but rose slightly in the GBD and YBD submarkets. The average monthly rental level rose 1.0% q-o-q, with increases now moderating after a year of high growth due to low vacancy and high inflation.
Investment: Eight office building transactions closed in Seoul and Bundang in Q3, with a total transaction volume of KRW2.0 trillion. Although this is still down 35% y-o-y, transaction activity predominantly involved assets that had experienced selling challenges due to the high interest rate environment seen since Q2 2022. In addition, office capitalization rate has continued to rise as office sales prices have stopped rising due to a decrease in the gap between sellers’ and buyers’ pricing expectations. The full-year 2023 overall transaction volume is still forecast to drop significantly y-o-y due to the high interest rate environment.
Data Center: In the first half of 2023, seven data center pipelines obtained new building permits and five have completed the commencement notice in the Great Seoul Area (GSA). Asset managers, telecommunications companies, and data center REITs have now been joined by domestic construction companies and small and medium-sized developers taking on the challenge of developing data centers.
While the Dispersed Energy Promotion Special Act, passed by the National Assembly in May, will raise operation burden for data centers located in the GSA, the demand and value of data centers in the GSA are expected to continue to rise due to the difficulty of relocation to non-GSAs by service providers that require low latency.
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