금융시장
Overview and outlook of office market in Seoul
2010-03-17KIM, Wan-Joong
목차
요약
Market Trends and Outlook for the Seoul Office Market
Market trends in the Seoul office market in 2009
Lifted by economic growth of 4~5%, the Seoul office market was booming following the IMF crisis with low vacancy rates in the 1% range and rents rising 5~8% per year.
Although the domestic office market was initially unaffected by the global financial crisis, vacancy rates in the Gangnam area have surged to the 4% range in H2 2008, and the market was in a downturn throughout 2009.
Recently, however, the rise in vacancy rates has slowed, rents have levelled off, and the office rental market appears to be stabilizing.
Although transaction volumes have increased, available space continues to rise, and transaction amounts peaked. Prices continue to decline, but have recovered to 70~80% of peak levels, and prices for large buildings in key areas are back to 95% of peak levels.
2010 outlook for the office market and supply and demand conditions
The continuing domestic economic recovery, the government's economic stimulus measures, and an economic growth outlook of 4~5% are positive factors for the office market. However, the office rental market lags behind the economy, and will be able to recover in H2 on the back of an economic recovery in H1.
New office space of 830,000m2 is expected in 2010 (up 140% YoY, downtown 61%,
Gangnam 28%). This additional supply is likely to increase vacancy rates in key areas.
Investment demand in the office markets, with expected yields of 5~6%, is expected to
continue, with a focus on prime buildings. However, transaction prices may soften due to rising interest rates and additional supply.
Mid-to-long term outlook
While overseas office markets have seen vacancy rates rise to the 10% range following the financial crisis, the Seoul office market has benefited from somewhat resilient demand and vacancy rates have been in the 4% range.
Aggregate new supply in Seoul is expected to be sufficient since large-scale new developments are planned in the 3 major areas, as well as Pangyo, Songdo and Yongsan.
However, in spite of the government's economic and employment stimulus measures, domestic demand and job creation remain weak and the economic recovery is uncertain.
As a result, new office demand is likely to be limited and may not be able to absorb
the large-scale new supply that is already planned.
Taking into account the concentration of office demand in certain areas and in buildings of a certain scale, demand is likely to be focused in prime buildings in major areas, which will exacerbate imbalances in supply and demand.
Implications
The domestic economy is expected to recover on the back of recovering external demand and improving investment conditions. Thanks to the government's stimulus measures, liquidity will be ample in H1 and will flow into the domestic market.
The prime office market is emerging as a new investment target for domestic liquidity,
and banks will need to comprehensively analyze this market as they adjust their portfolios.
In spite of external factors such as renewed financial turmoil, prices for prime offices in key areas are recovering to pre-crisis levels and demand remains resilient. Institutional investors with a long-term horizon are likely to continue to favor this market.
However, investment yields from the office market are expected to be somewhat limited due to the lingering effects of the financial crisis and new supply from large-scale developments.
In spite of the government's job creation policies, the domestic economy remains structurally weak and the job market sluggish. This is a risk factor that could threaten potential demand in the office market.
Also, external shocks (i.e. sovereign risk) could result in lower than expected economic growth. If this were to happen, certain areas that are particularly sensitive to economic conditions could enter a downturn.
Market trends in the Seoul office market in 2009
Lifted by economic growth of 4~5%, the Seoul office market was booming following the IMF crisis with low vacancy rates in the 1% range and rents rising 5~8% per year.
Although the domestic office market was initially unaffected by the global financial crisis, vacancy rates in the Gangnam area have surged to the 4% range in H2 2008, and the market was in a downturn throughout 2009.
Recently, however, the rise in vacancy rates has slowed, rents have levelled off, and the office rental market appears to be stabilizing.
Although transaction volumes have increased, available space continues to rise, and transaction amounts peaked. Prices continue to decline, but have recovered to 70~80% of peak levels, and prices for large buildings in key areas are back to 95% of peak levels.
2010 outlook for the office market and supply and demand conditions
The continuing domestic economic recovery, the government's economic stimulus measures, and an economic growth outlook of 4~5% are positive factors for the office market. However, the office rental market lags behind the economy, and will be able to recover in H2 on the back of an economic recovery in H1.
New office space of 830,000m2 is expected in 2010 (up 140% YoY, downtown 61%,
Gangnam 28%). This additional supply is likely to increase vacancy rates in key areas.
Investment demand in the office markets, with expected yields of 5~6%, is expected to
continue, with a focus on prime buildings. However, transaction prices may soften due to rising interest rates and additional supply.
Mid-to-long term outlook
While overseas office markets have seen vacancy rates rise to the 10% range following the financial crisis, the Seoul office market has benefited from somewhat resilient demand and vacancy rates have been in the 4% range.
Aggregate new supply in Seoul is expected to be sufficient since large-scale new developments are planned in the 3 major areas, as well as Pangyo, Songdo and Yongsan.
However, in spite of the government's economic and employment stimulus measures, domestic demand and job creation remain weak and the economic recovery is uncertain.
As a result, new office demand is likely to be limited and may not be able to absorb
the large-scale new supply that is already planned.
Taking into account the concentration of office demand in certain areas and in buildings of a certain scale, demand is likely to be focused in prime buildings in major areas, which will exacerbate imbalances in supply and demand.
Implications
The domestic economy is expected to recover on the back of recovering external demand and improving investment conditions. Thanks to the government's stimulus measures, liquidity will be ample in H1 and will flow into the domestic market.
The prime office market is emerging as a new investment target for domestic liquidity,
and banks will need to comprehensively analyze this market as they adjust their portfolios.
In spite of external factors such as renewed financial turmoil, prices for prime offices in key areas are recovering to pre-crisis levels and demand remains resilient. Institutional investors with a long-term horizon are likely to continue to favor this market.
However, investment yields from the office market are expected to be somewhat limited due to the lingering effects of the financial crisis and new supply from large-scale developments.
In spite of the government's job creation policies, the domestic economy remains structurally weak and the job market sluggish. This is a risk factor that could threaten potential demand in the office market.
Also, external shocks (i.e. sovereign risk) could result in lower than expected economic growth. If this were to happen, certain areas that are particularly sensitive to economic conditions could enter a downturn.