Gangnam in Style as Seoul Office Vacancy Falls to 12-Year Low

The vacancy rate in Seoul’s Grade A office sector fell to 4 percent in the first three months of the year, the lowest level since 2010, with a lack of new supply signalling a landlord’s market for at least the next three years in the South Korean capital, according to research from Colliers.

Several major leases drove down vacancy rates in the Central Business District by 2.5 percentage points to an average of 7 percent in the first quarter, the property services firm said in a quarterly report released last week. Going forward, the CBD area around the Seoul Station railway hub is forecast to have more available space compared with other submarkets in light of consistent new supply scheduled through 2026.

Vacancy in the upmarket Gangnam Business District, meanwhile, was a minuscule 0.6 percent in the quarter, reflecting a complete lack of available space in the area, said Jay Cho, senior director for office and industrial services at Colliers in South Korea.

“As the GBD is Seoul’s most popular submarket, especially for tech companies, landlords are no longer providing rent-free incentives and are becoming more selective about their preferred tenants,” Cho said. “We recommend tenants who are looking for opportunities in the GBD to act quickly when presented with reasonable leasing options or to consider areas outside the GBD.”

Rents Climbing

First-quarter office rents in the Seoul CBD averaged KRW 33,650 (now $27.44) per square metre per month, up 0.4 percent from last year’s final quarter, while GBD rents inched up 0.2 percent to KRW 29,985. The Yeouido Business District, which serves as the city’s main financial centre, saw the biggest increase in rents, rising 0.8 percent to KRW 26,125.

The CBD got a leasing boost in the period as the 33-storey Jongno Tower filled its remaining vacancies with affiliates of SK Group, the country’s third-largest conglomerate, after they decided to relocate to the property. The Grand Central Building, meanwhile, signed lease agreements with trading group Posco International and microfinanciers KINFA and Happy Fund.

In the GBD, vacancy fell by 0.5 percentage points as landlords gained the upper hand amid escalating competition among tenants.

“In fact, leasing competition is so great that some new leases require tenants to pay the restoration costs for the vacating tenant, along with a long line of intensified leasing demands,” the report said.

With rent-free incentives no longer on the table, some tenants are looking to relocate out of the GBD. British American Tobacco, for instance, decided to move out of Gangnam Finance Center to the Center 1 building in the CBD.

Long-Term Outlook

In the long term, Colliers expects the concentration of office supply to shift from Gwanghwamun, traditionally considered Seoul’s core, to the area around Seoul Station.

“For long-term development projects in the GBD, supply and demand are mismatched,” the agency said. “We expect that the supply will only begin to have an impact after 2025. Before then, we expect that available office space in Gangnam will continue to be in short supply.”

Demand from tech occupiers, specifically fintech firms, is likely to persist in the YBD as leasing opportunities dry up in the GBD.

With vacancy across the three major submarkets continuing to decrease, Colliers predicts more leasing activity and tenant movement in the emerging business districts of Seongsu-dong, Pangyo, Magok and Gwacheon.