Korean Commercial Property Investment Set to Ease After Record $42B in 2021

After soaring to a record KRW 54 trillion ($42 billion) in 2021, investment in South Korea’s commercial property market is expected to decrease this year on concerns about rising interest rates, according to Colliers research.

Prime office investment in Seoul last year reached KRW 13 trillion ($10.2 billion), also a record, amid low interest rates and abundant liquidity in the market, Colliers said in its Korean Commercial Real Estate Investment Market report.

The property services firm expects prime office investment in the capital to fall as sentiment grows more conservative and the number of assets on the market declines. But despite higher borrowing costs, investors’ interest in Korean commercial real estate continues, said Sungwook Cho, head of capital markets and investment services at Colliers International Korea.

“However, for successful investments in a rising interest rate environment, a mid- to long-term investment strategy will be necessary,” Cho said. “Investors should focus on potential rent increases as well as the diversification of investment structure by securing (common stock) investors with a lower required rate of return.”

Gangnam Stays in Style

The Gangnam Business District commanded the highest prices for office properties on a unit area basis in the past 18 months, as Korean investors deterred by COVID-19 curbs shunned offshore investments in favour of domestic deals.

The highest price paid for a prime office property on a per unit basis in that period was $12,000 per square metre, which sporting goods distributor Creas F&C shelled out for the Hyungji Building in Yeoksam-dong, a neighbourhood of Gangnam.

Two other Gangnam office assets, Anjae Tower and the Samsung SDS Multi-Campus, each changed hands for $11,000 per square metre, acquired respectively by medical devices maker Classys and listed trust KOREIT.

“As for office unit prices in 2022, we expect preferences for office assets to continue due to strong leasing demand, particularly from tech companies, combined with a lower level of new supply,” Colliers said. “Therefore, despite the trend of rising interest rates, we expect office unit prices to maintain an upward trend, mainly in the Gangnam area.”

In terms of deal value, Colliers expects the largest office transaction from 2021 through the first half 2022 to be the National Pension Service’s forward purchase of a nearly completed building in Seoul’s tech-centric Magok district for KRW 1.4 trillion ($1.1 billion).

Another notable big-ticket deal was Seoul-based Mastern Asset Management’s acquisition of the Alpharium Tower in Pangyo from ARA Asset Management for KRW 1.02 trillion ($780 million) earlier this year, with the Singapore firm nearly doubling its investment in the 2015-vintage asset.

IFC Seoul Sale Pending

One data point absent from the report was Mirae Asset Global Investments’ selection as the preferred bidder in the contest to acquire the International Finance Center in Seoul.

Mirae Asset secured the prize after a consortium of Shinsegae Property-IGIS Asset Management dropped out of the final round, as reported last month in local media. The deal is estimated at KRW 4.1 trillion ($3.2 billion), according to sources cited by the Korea Economic Daily.

Located in the Yeouido business hub, the mixed-use IFC Seoul complex features three high-rise office towers, a three-level retail mall and the five-star Conrad Seoul hotel. Canada’s Brookfield Asset Management acquired IFC Seoul from AIG Global Real Estate for $2.7 billion in 2016, in a bid purportedly backed by sovereign wealth fund China Investment Corporation.