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Sorim JIe: Seoul's Office Market Remained Sought After with Low Vacancy Rates

13/05/2025
Korea office market has not been largely affected by Covid-19 nor WFH. Although there has been a slowdown in rent increase and net absorption, the vacancy rate in major business district is still under 5% and the cap rate still at mid-4% for Grade A offices.

In 2024, several office transactions were completed for end-users including individuals and companies. Amidst the booming office rental market and the shortage of new building supply, securing large office buildings has become difficult. With high interest rates and rising construction costs increasing the burden of new developments, companies are strategically investing in existing office buildings to secure their headquarters.

Additionally, large corporate-sponsored REITs, which have emerged as the real estate finance market in Korea has grown, have played a significant role in transactions since last year. As interest rates enter a downward phase and market liquidity is expected to improve, financial investors are also expected to become more active again.

While the preference for core offices will likely continue, large-scale supply plans in the CBD are causing many players to hesitate. Although the vacancy rate is still extremely low at less than 5%, it has started to deviate from the trend of continuous decline, and the trend of rising rents is also slowing down. Therefore, investors who prefer offices with potential for rent increases are expected to shift their preference to buildings with relatively low vacancy risk through long-term contracts with anchor tenants.

Moreover, as preferences vary depending on the size and location of the assets, the price gap between prime and non-prime assets is expected to deepen further. For example, buildings around Teheran-ro still maintain a CAP RATE of around 4%, while buildings with less favorable locations or aging conditions show levels exceeding 5%. Nevertheless, compared with other mature markets globally, cap rate of office assets in Seoul is still relatively low. We expect office assets in Seoul to remain sought after by investors and end-users given its strong resilience in asset value.
 

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