Economic Overview
With the recent improvement in the Korean economy faltering, the BOK now forecasts domestic growth at 1.4% for 2023 and 2.2% for 2024. Stronger performance may be possible, coming from the rebound in the IT economy and the influx of Chinese tourists, but external uncertainties remain, including continued monetary tightening in the U.S., rising oil prices, and geopolitical risks in the Middle East.
Supply and Demand
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.
The vacancy rate in the CBD submarket fell 1.1 pp q-o-q to 2.6%, now the same level as at YBD, prompting the fall in the overall market vacancy rate. The quarter saw relatively large-scale leasing activity, such as Hanwha Systems’ contract for four floors at Pine Avenue Building A, and SMCore completing leases at Seoul City Tower, which is undergoing phased remodeling. KCCI Building cleared all remaining vacancy as Access World Korea relocated, while Preed Life and Daeryun Law Firm signed at KDB Life Tower. Woori Bank and Yongyong Tech completed lease agreements at the renovated Myeongdong N Building, filling significant vacant space.
The GBD vacancy rate rose 0.4 pp q-o-q to record 1.6%. Some tenants reduced office spaces or relocated, but larger-sized vacancy remains sparse. Alvogen Korea relocated to GT Tower, while Fadu signed an expansion contract at The Pinnacle Gangnam. Nau IB Capital completed its relocation to the area, from Golden Tower to Glass Tower, and Sparkplus opened a new branch in COEX, leasing the space formerly occupied by Lotte Duty Free. Next year, Baekam Building and Centerpoint Gangnam, which are under reconstruction, are expected to come on stream, making GBD submarket a viable option for tenants seeking large spaces amid the extremely tight supply.
At YBD, vacancy moved up 0.5 pp q-o-q to reach 2.6%. The completion of Anchor 1 in the quarter contributed to the rise, but the impact was mitigated as Yuanta Securities, LG Uplus, and Korea Securities Finance Corp. completed lease agreements. In addition, EY Han Young signed a lease for the upper floors of Parc.1 Tower 2 (NH Finance Tower), which had been vacant for a long period. KCGI Asset Management moved into One IFC, while Hyundai Securities signed an expansion contract for the remaining space at Hyundai Securities Building. Timefolio Asset Management has decided to move into TP Tower, which is scheduled to be delivered in the first quarter of 2024.
