Why Seoul’s office transaction volumes crashed in Q1

The city’s KRW989.5b transaction in Q1 is a mere 26% of the volumes recorded the previous year.

Investors remain cautious amidst the relatively tight monetary policy. According to Savills, this resulted in a decrease in Seoul’s total office transaction volume during Q1/2023 to approximately KRW989.5 billion, just 26% of the transaction volume of KRW3.88 trillion in Q1/2022.

The fall in investment volumes is mostly driven by investors maintaining a wait-and-see attitude. 

Here’s more from Savills:

Autoway Tower in the GBD was acquired via a share deal by Nexon, a strategic investor, from the Korean Teachers Credit Union (“KTCU”). In the high-interest rate environment, KTCU reportedly decided to sell a 50% stake in the fund for liquidity purposes, as union members switched to KTCU’s loans which offered lower interest rates than the market. Nexon has disclosed the need for additional space having expanded significantly during COVID. 

In a situation where prime office investment activity remained subdued, the cryptocurrency exchange Bithumb purchased the Daese Building (for KRW163 billion) with a land area of 633 sq m (KRW850 million/land area py). The asset is located in the centre of the GBD with a 1-minute walk from Samseong Station. In January of last year, it was reported that Bithumb had purchased a nearby building with a land area of 689 sq m for KRW674 million/land area py. 

In the CBD, ongoing transactions include the forward purchase of Eulji Finance Center by Mirae Asset Global Investments for a total consideration of c. KRW820 billion. The asset with a proposed gross floor area of approximately 20,000 py, will be located in the CBD within a 1-minute walk from Euljiro 3-ga Station (Subway Lines 2 & 3), and is expected to complete in 2027, after which the Mirae Asset Financial Group will likely occupy some of the space. 

Seoul’s prime office gross cap. rate as of Q1/2023 is estimated to be in the mid-4% range on a face-rent basis and in the low-4% range on an effective rent basis, representing an increase of 10bps QoQ. Reversing its upward trend, Five-year Treasury bond yields decreased 48bps QoQ to 3.4% in Q1/2023, resulting in widening the cap. rate spread of approximately 110bps. 

Total office transaction volumes in Q1/2023 significantly decreased due to withdrawals and delays in the previous quarter. Therefore, there have been a few transactions that were initially marketed last year and have since completed this year as bid-ask spreads have gradually decreased. As the uncertainty surrounding the level of interest rates starts to fade, investment activity is likely to be more dynamic over the coming quarters.