savills.co.kr/research 01 Briefing Seoul office sector Q1 2018 Savills World Research Korea With strong exports and domestic demand recovering, the Bank of Korea forecasts that the Korean economy will grow by 3.0% in 2018 and 2.9% in 2019. In Q1/2018, Seoul Prime Office demand decreased by 45,500 sqm in the YBD and 23,000 sqm in the CBD. The GBD saw a net increase of 28,200 sqm. "Despite the increase in the base rate at the end of 2017, investors remain active and there are a wide range of prime deals on the market." Savills Research Image : GBD, Seoul In Q1/2018, the face rent in Seoul prime office buildings increased by 2.0% YoY. These increases were mainly led by rent adjustments to reflect the current market conditions after long-term anchor tenants vacated. Large transactions over KRW 200 billion led volumes to nearly double the 10 year average for Q1. These included; The K Twin Towers, KB Myeongdong Office, Pacific Tower and East Central Tower. SUMMARY Total transaction volumes reached KRW 2.1 trillion in Q1/2018, with investors deploying capital throughout the risk spectrum.
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savills.co.kr/research 01
BriefingSeoul office sector Q1 2018
Savills World Research Korea
With strong exports and domestic demand recovering, the Bank of Korea forecasts that the Korean economy will grow by 3.0% in 2018 and 2.9% in 2019.
In Q1/2018, Seoul Prime Office demand decreased by 45,500 sqm in the YBD and 23,000 sqm in the CBD. The GBD saw a net increase of 28,200 sqm.
"Despite the increase in the base rate at the end of 2017, investors remain active and there are a wide range of prime deals on the market." Savills Research
Image : GBD, Seoul
In Q1/2018, the face rent in Seoul prime office buildings increased by 2.0% YoY. These increases were mainly led by rent adjustments to reflect the current market conditions after long-term anchor tenants vacated.
Large transactions over KRW 200 billion led volumes to nearly double the 10 year average for Q1. These included; The K Twin Towers, KB Myeongdong Office, Pacific Tower and East Central Tower.
SUMMARYTotal transaction volumes reached KRW 2.1 trillion in Q1/2018, with investors deploying capital throughout the risk spectrum.
savills.co.kr/research 02
Briefing | Seoul office sector Q1 2018
SupplyIn Q1/2018, the Korea Teacher’s
Credit Union completed their new
building (K Tower) in Yeouido and
relocated from 63 building. In Q2,
KB Securities also relocated, exiting
from three buildings in Yeouido
(Hyundai Securities Building, Simpak
Building and KB Financial Tower)
and consolidating their operations,
leasing floors 2 to 22 in K tower for
10 years. In Pangyo, Alpha Dome
Towers Ⅲ and Ⅳ were completed
and it was announced that HPI (Ⅲ),
Blue Hall and Naver (Ⅳ) will move in.
Demand and vacancy rateThe Bank of Korea has forecasted
in April that real GDP will grow by
3.0% in 2018 and 2.9% in 2019.
With robust global economic
growth, Korean exports and facilities
investment in Korea has been
showing positive signs. However, the
recovery in employment conditions
has slowed and inflationary pressures
will not be that high. As a result the
BOK has maintained the base rate at
1.5%, but will continue to carefully
monitor conditions related to trade
and monetary policies with major
countries.
In Q1/2018, Seoul Prime Office
demand decreased by 45,500 sqm in
the YBD and 23,000 sqm in the CBD.
The GBD saw a net increase of 28,200
sqm. LG affiliates moved to purpose
built facilities in Magok and the CBD
from the YBD, which underpinned a
significant net absorption decrease in
the area. Overall Seoul net absorption
dropped 40,200 sqm.
In the CBD, the vacancy rate
increased 0.9ppt from the previous
quarter to 16.7% with large new
vacancies in Jongno Tower and the
Jeongdong Building. In the GBD the
vacancy rate dropped to its lowest
level in 4 years at 5.1% with some
TABLE 1
Monthly rent, maintenance fee and vacancy rate by district, Q1/2018
GRAPH 1
Growth rate of real GDP and real exports, 2006–2018 (F)
Source: Bank of Korea
GRAPH 2
The number of employees in the financial and insurance sectors, Mar 2009–Mar 2018
District Building Tenant Area (sq m) District Building
CBD
The K-Twin Towers WeWork 7,000 New
Seoul City TowerKorea Human Resource Development Institute For Health & Welfare
4,600 Non-coreDaeyeon Bldg (Bongcheon-dong)
Signature Towers Seoul Lotte Asset Development 4,400 CBD Center 1
Signature Towers Seoul SamKoo INC 2,800 Non-coreSamkoo Bldg (Shindaebang-dong)
Signature Towers Seoul Tidesquare 2,800 CBD Pacific Tower
Pine Avenue AS-BTM (BTM Business Unit of Shilla Hotel & Resort)
2,800 New
Pine Avenue A Ocean Networks Express Korea 2,800 CBD SK Hub
Youngpoong Bldg SK Innovation 2,200 CBD SK Seorin Bldg
The K-Twin Towers Tefal Korea 2,000 CBD Gwanjung Bldg
Pacific Tower Pierre Fabre Korea 1,900 GBD Grace Tower
Booyoung Eulji Bldg DGB Daegu Bank 1,700 CBD Naeoe Bldg
T Tower (former LG U Plus Tower) LG Electronics 1,600 CBD LG Seoul Station Bldg
Shinhan L Tower Shinhan Data System 1,300 CBD Shinhan Bank Centennial Hall
GBD
Posco Center Posco ICT 3,900 Expansion
Arc Place (former Capital Tower) Dyson Korea 2,800 New
Posco P&S Tower Epson Korea 2,500 Non-core Daesung D Polis (Gasan-dong)
Posco Center Posco C&C 2,400 Non-corePosco SS&CC Tower (Banpo-dong)
Posco P&S Center CGO 1,700 GBD Gangnam Telephia Bldg
SI Tower Tera Fintech 1,500 GBD Hyeonik Bldg
Posco Center Nikon Imaging Korea 1,500 CBDKCCI (The Korea Chamber of Commerce & Industry)
YBD
The K Tower The Korean Teachers’ Credit Union 14,400 YBD 63 Bldg
SK Securities Bldg (former K Tower)
SK Securities 3,200 YBDSamsung Life Insurance Yeouido Bldg
FKI Tower Focus Media Korea 2,800 Non-coreInvest Korea Plaza (Yeomgok-dong)
Samsung Life Insurance Yeouido Bldg
BNK Asset Management 1,900 CBD Geumsegi Bldg
Samsung Life Insurance Yeouido Bldg
Eugene Asset Management 1,900 YBD Eugene Bldg
KTB Bldg Zest C&T 1,700 Non-core Ace High Tech City (Mullae-dong)
FKI Tower Korea Investment Capital 1,700 YBD Korea Investment Securities Bldg
FKI Tower The Korea Digital Exchange 1,300 CBD Adora Tower
about KRW 190 billion as a major investor. About 80% of existing tenants renewed their contracts over the past year and the vacancy rate was less than 5% upon sale.
Other investors are pursuing higher
profits through reconstruction and remodeling. US real estate investor, Angelo Gordon purchased KB Kookmin Bank’s Myeongdong headquarters located in the CBD for about KRW 241.2 billion, with Mastern AMC. They plan to demolish
the existing office buildings and rebuild them into retail and hotel facilities.
Pebble Stone AMC also bought the Hana Card Dadong office in the CBD for about KRW 73.1 billion.
Savills plcSavills is a leading global real estate service provider listed on the London Stock Exchange. The company established in 1855, has a rich heritage with unrivalled growth. It is a company that leads rather than follows, and now has over 500 offices and associates throughout the Americas, Europe, Asia Pacific, Africa and the Middle East.
This report is for general informative purposes only. It may not be published, reproduced or quoted in part or in whole, nor may it be used as a basis for any contract, prospectus, agreement or other document without prior consent. Whilst every effort has been made to ensure its accuracy, Savills accepts no liability whatsoever for any direct or consequential loss arising from its use. The content is strictly copyright and reproduction of the whole or part of it in any form is prohibited without written permission from Savills Research.
District Building Name Seller Buyer Transacted area(sq m)
Transaction Price (KRW bil)
CBD
The K-Twin Towers Vestas AMC Samsung SRA AMC 83,899 713.2
KB Kookmin Bank HQ Myeongdong KB Kookmin Bank Mastern AMC
(Angelo Gordon) 25,639 241.2
Pacific Tower Deutsche AMC (Alpha invest-ment)
Pebblestone AMC (National Housing and Urban Fund) 59,500 441.0
Hana Card HQ Dadong Hana Alternative AMC Pebblestone AMC (AEW Capital) 15,113 73.1
Gangdong East Central Tower SL D&C Millinium Inmark AMC (Mirae Asset Daewoo) 100,423 340.0
Hongdae Gyojeong Building Correctional Mutual Aid Association Mastern AMC (Mercer Investment) 6,044 43.0
BBD Seohyun Building Intrus (Construction Workers Mutual Aid Association) JS AMC 17,439 52.5
savills.co.kr/research 08
Briefing | Seoul office sector Q1 2018
AppendixOverview of the Seoul office market and Savills Korea office survey
Close to 60% of large office buildings (30,000 sq m or more) in Seoul are located in three major business districts – the CBD (31%), GBD (17%) and YBD (13%). The CBD is the largest of these districts and is home to major government and multinational institutions. The GBD also houses many multinational companies and is an information technology centre, while YBD, the "Wall Street" of South Korea, includes the headquarters of major securities firms and broadcasting companies.
The Savills Korea Quarterly Office survey is the longest running survey
TABLE 5
Summary of surveyed buildings, Mar. 2018
Source: Savills Research & Consultancy
of prime office stock in Seoul. Established in 1997, it currently comprises 93 of the 120 buildings in Seoul classified as "prime" buildings.
Prime buildings: Buildings with a GFA greater than 30,000 sq m with good accessibility and facilities, a high level of finish, and creditworthy blue-chip tenants.
Monthly rent: Surveyed rents are "face rents", the asking rents reported by landlords for mid-level floors. These rents are standardised by Savills Korea to account for variations in the security deposits required by different
CBD GBD YBD Total
A
Number of buildings 23 12 10 45
Average GFA (sq m) 85,000 99,000 99,000 92,000
Average year of completion 2006 2004 2005 2005
B
Number of buildings 22 18 8 48
Average GFA (sq m) 54,000 48,000 45,000 50,000
Average year of completion 2004 1999 1996 2001
Total number of buildings 45 30 18 93
Total area (sq m) 3,150,000 2,040,000 1,350,000 6,540,000
landlords to produce an effective rental figure for NLA.
Cap rate calculation methodCap rate: (income from interest on security deposit (5%) + face rent of a standard floor + residual income from maintenance fee) × occupancy rate (90%) × 12 / transaction amount.
For comparison of cap rates of each transaction case, a 5% interest rate on security deposit and 90% occupancy rate were uniformly applied.