Global economic institutions now forecast the global economic growth rate to be at 1%–2% in 2023, a downward revision from the previous year. With concerns for the global economy mounting, the OECD has also forecast South Korea’s economic growth rate for 2023 at 1.8%, down 0.9% pp from the previous year. According to the Bank of Korea, private consumption has continued to recover, fueled by pent-up demand, although the pace of recovery is now expected to weaken due to rising interest rates and consequent declining buying power. In addition, facility investment is expected to slightly shrink because of external uncertainties.
Halt To Fall In Overall Vacancy
The overall Grade A office vacancy rate rose 0.2% pp from the previous quarter to reach 2.4%, the first increase following six consecutive quarters of decline. The overall office rental level also rose 2.2% pp q-o-q, with rising rents in GBD now extending to YBD and CBD rental growth.
The vacancy rate in CBD submarket climbed 0.4% pp q-o-q to 3.7%. The Concordian building cleared all vacancy through a lease with Binggrae. Nortable leasing activities at CBD also included Audi Korea moving to Youngpoong Building, Korea Airlines to Hanwha Life Insurance Taepyeongro, and GroupM Korea to the KDB Life Insurance Tower.
The vacancy rate in the GBD district remained unchanged q-o-q at 1.2%. Dongil Tower completed a contract signing with South Cape. Majesta City Tower 1 signed lease contracts with NTB Korea, while Keungil Tower signed with TEC. Scale Up Center will also move into the Korea Science and Technology Center.
At YBD submarket, vacancy edged up 0.2 pp q-o-q to reach 1.7%. Notable major leases at YBD were transacted around Parc1, with Raon Secure taking two floors of Parc.1. Meanwhile, Parc.1 Tower 2 (NH Financial Tower) was contracted to Fursys and Apple Korea. In addition, Kuehne+Nagel is ready to move into the Hana Financial Investment Building. New supply comprising the TP Tower and Anchor One is scheduled for YBD submarket in Q4 2023. However, TP Tower is known to have completed pre-leasing activity and the overall impact of the incoming supply on the YBD market is expected to be limited.
The overall Seoul office market vacancy rate is expected to rise slightly in 2023, with some firms having difficulty securing venture capital investment and burdened by rent hikes. We also expect rents to rise slightly reflecting inflation, but the increase will be in a limited range.