Seoul’s Grade A office vacancy now at an all-time low of 1.1%

The vacancy rate has been steadily decreasing since 2021.

Overall, Seoul’s vacancy rate plummeted by 67 bps q-o-q, reaching a new record low of 1.1%, according to data from JLL. With the exception of Gangnam, all submarkets saw a drop in vacancy in the quarter. 

Despite the strong leasing demand, Gangnam’s vacancy rate increased marginally by 12 bps q-o-q, which is expected to be a temporary uptick. The vacancy rate of CBD and Yeouido were within the 1% range in the quarter.

Here’s more from JLL:

Lack of leasable spaces leads to a decrease in net take-ups

Seoul’s quarterly overall net absorption recorded around 12,700 pyeong. While CBD and Yeouido showed positive figures, the net absorption in Gangnam recorded about -800 pyeong. Overall net take-up decreased by 13.9% q-o-q and 73.2% y-o-y due to limited leasable spaces despite the strong leasing demand. The number of leasing deals also observed a downward trend for the same reason.

In the quarter, CBD marked the highest net absorption in Seoul, reading about 11,500 pyeong, while Yeouido recorded a net take-up of about 2,000 pyeong. One notable leasing deal in the CBD was Volkswagen Group Korea’s contract to occupy the Youngpoong Building. In Yeouido, TEC signed a lease at the Hana Investment & Securities Building.

Investment volume plunges amid difficulties in financing

In the quarter, net effective rent for overall Seoul increased by 3.3% q-o-q and 22.2% y-o-y, reaching KRW 125,344 per pyeong per month. The quarterly rent uptick was attributable to increased net rents while rent-free periods stayed flat q-o-q. Rents in all three submarkets experienced an upward trend and Gangnam witnessed the largest quarterly uptick of 4.8%.

The office investment volume in 1Q23 plunged, reaching KRW 1.3 trillion. Due to mismatched pricing between sellers and buyers, deals were often not closing as expected. One notable deal involved JoongAng Ilbo HQ Building and M Building. CTCore-Samsung SRA Asset Management consortium acquired these buildings for KRW 290 billion, for redevelopment purposes.

Outlook: Deal volume may decline despite strong investment appetite

Although all three submarkets are expected to welcome new supply within a year, vacant spaces are anticipated to fill up quickly on the back of bullish leasing demand. There are already a number of pre-leases in the upcoming supply. Consequently, rents are likely to demonstrate an upward trend.

Seoul’s office market is expected to remain resilient, backed by its healthy market fundamentals. However, liquidity issues arising from the high cost of debt are predicted to put some pressure on transaction volume. Nonetheless, core assets located in prime locations are expected to continue to attract investors who have ample liquidity. 

Note: Seoul Office refers to Seoul's Grade A office market.