Seoul Office Rents Grew 2.4% in Q1, Now Up 9.4% From March 2023

Seoul’s office market continues to defy a global slowdown as rents for workspace in the Korean capital climbed by 2.4 percent quarter-on-quarter in the first three months of the year, according to JLL.

Office tenants paid an average monthly rent of KRW 41,502 ($30) per square metre for desk space in Seoul in the first quarter of 2024, an increase of 9.4 percent from the same period last year, according to a report by the property consultancy.

Despite tenants leasing 5,365 square metres more than they gave back during the period, average grade A office vacancy in Korea’s largest city reached 3.6 percent in March, up from 1.5 percent at the end of last year. The property consultancy attributed the rising vacancy to the completion of TP Tower, a 123,900 square metre office building in the Yeouido business district.

“The Seoul office market faced a supply shortage in the past few years, thereby creating a landlord-favoured market,” noted Veronica Shim, head of research for JLL Korea, who pointed out that developers launched an average of 102,816 square metres of work space in the three years ending in 2023, which was 67.7 percent below the annual average from 2018-2020 and helped lead to the current shortage.

CBD Leads Growth

Among the Korean capital’s three primary business hubs, Seoul’s traditional central business district experienced 4.3 percent quarterly growth during the period, to stand out as the city’s hottest commercial location. Vacancy in the area increased 0.2 percentage points from the same time last year to stand at 1.7 percent at the end of March, with rents averaging KRW 42,007 per square metre according to JLL.

In Yeouido business district, which is home to the Korea Stock Exchange as well as to local financial giant Kookmin Bank, rents rose by 2.5 percent in the first quarter, while Gangnam business district which hosts headquarters for Google and Samsung, saw an average 1.5 percent increase.

Helping to drive leasing during the quarter was Shinhan Finance Group, which committed to establishing a new headquarters in Korea Teacher Pension’s TP Tower, where it is set to occupy 62,810 square metres in the 42-storey building.

Metal smelter Korea Zinc also signed a mega-lease with the KRX-listed company revealing last month that it is planning a July relocation from Gangnam to a 36,364 square metre-space in Koramco REITs & Trust’s Gran Seoul, a 24-storey building in the central business district.

JLL attributed the strong performance of Seoul’s office market in part to a lack of lasting damage from the pandemic.

“Seoul office market remained unabated, defying economic downturn. On the contrary to other global markets, buoyant leasing activity of domestic tenants underpinned Seoul offices,” Shim told Mingtiandi. “Korea never underwent a strict lockdown situation during the pandemic, and the return-to-office ratio has fully recovered to the pre-pandemic level. The work-from-home policy did not really settle in the country as well.”

Office Deals Continue

The strength of Seoul office leasing has caught the attention of investors, with dealmakers trading KRW 3.46 trillion worth of office assets in Asia’s fourth largest economy in the first quarter of the year, which was up 27.6 percent from the October to December period.

The largest deal of the quarter was Blackstone’s sale of Arc Place, a 24-storey building in Gangnam, to local fund manager Koramco for KRW 792 billion in March. The Manhattan-based firm sold the 62,748 square metre property for around 40 percent more than the reported 2016 acquisition price in local currency terms.

In another Gangnam deal, Korea-based Hanwha Asset management agreed in March to sell T412, a 19-storey office tower on the city’s Teheran-ro commercial strip, to local bedding manufacturer Allerman for KRW 330 billion.

In Seoul’s central business district, IGIS Asset Management last month acquired the 41,139 square metre Metro Tower from a fund backed by Tongyang Life Insurance for KRW 415.6 billion.

That Seoul office hot streak has continued this month with M&G Real Estate announcing in early April that it sold the Icon Yeoksam office building on Teheran-ro for KRW 204.3 billion, with Mingtiandi identifying the buyer as local investment manager Capstone AMC.