Net absorption in the CBD saw an increase. However, the GBD recorded a decrease in demand as Samsung Electronics relocated to Suwon and Hyundai Motor Company moved to secondary buildings, along with the KEPCO building’s demolition. Unlike the CBD and YBD where increased demand led to declines in their vacancy rates, the GBD saw its vacancy rate fall as the total office area downsized following the demolition of the KEPCO building. 

The benchmark interest rate, which was lowered in June, remained at 1.25% in July, its lowest level ever, as a preemptive measure amid concerns over weak domestic consumption following the restructuring of the shipbuilding and shipping industries and a decrease in exports. The capital value of prime buildings is expected to remain at the current level as investors’ interest will be more focused on core assets in the wake of Brexit. 

Supply: There was no new supply in Q2/2016. In 2H/2016, three new buildings will be supplied in the major office districts: HQ of Daishin Securities and IBK in the CBD and Parnas Tower in the GBD. There will be a limited impact of new supply in the CBD market. The IBK HQ building will be solely used as the company’s headquarters and the Daishin Securities HQ building will also be fully taken up by the company itself as well as a tenant that has signed a MOU for the remaining space. In the GBD, all of Parnas Tower will be available for lease. It is reported that a business center recently signed a lease contract with Parnas Tower 

Demand and vacancy rate: The growing uncertainty due to Brexit has heightened concerns over the slow recovery of the global economy. The continued weak economy has led to sagging exports, which, in turn, is expected to result in a decline in Korea’s economic growth rate. The government has announced diverse stimulative measures including an additional budget in order to invigorate the domestic economy. The Bank of Korea (BOK) forecasted a steady growth in GDP but uncertainty will continue to impact the economy. BOK lowered the GDP growth rate and CPI to 2.7% and 1.1% respectively, as the market is highly volatile given the internal and external factors. 

In Q2/2016, net absorption was 14,000 sq m in the Seoul office market. By district, the CBD recorded a net absorption of 38,140 sq m, the GBD of -27,450 sq m and the YBD of 3,340 sq m. Tenants relocating between prime office buildings accounted for 37% of the total movement – the largest share during the reviewed period – with Samsung Electronics relocating to prime office buildings in the GBD. Upgrade from secondary to prime office space accounted for approximately 33% of the total movement, especially in newly completed office buildings with high vacancy rates, as landlords offered aggressive incentives to attract or retain tenants. If Samsung Electronics’ relocation is excluded, upgrade demand(46%) is the dominant reason for movement this quarter

View the market outlook and full report here