According to Savills, The Bank of Korea lowered its economic outlook to 2.6% for 2019 in January. In November 2018, the Monetary Policy Board raised the BOK base rate from 1.50% to  1.75%, leaving the rate unchanged. According to the board’s January announcement, the domestic financial market stablised recently, as volatilities in global financial markets diminished slightly. The Board will maintain its accommodative monetary policy stance, forecasting that inflationary pressures on the demand side will not be high for the time being and that the domestic economy will sustain a rate of growth that does not diverge significantly from its potential level.

"Total investment volumes in Seoul’s office market surged to a historical high of KRW11.6 trillion in 2018. Surpassing the previous year’s six transactions, 12 large office deals each valued at more than KRW300 billion were inked," said Savills. 

Report Key Findings:

• With the domestic economy sustaining a rate of growth that did not diverge significantly from its expected potential, the Bank of Korea’s Monetary Policy Board raised the base rate by 25 basis points from 1.50% to 1.75% on 30 November 2018.
• By the end of December 2018, the vacancy rate for Seoul’s prime office area was 12.4%, up 0.7%p on the previous quarter. The vacancy rates for GBD and YBD fell in the previous quarter. The CBD’s vacancy rate rose, mostly due to new supply coming from the Centropolis , which represented 2% of Seoul prime office area and 4% of the CBD.
• In 2018, demand for prime offices was driven by companies in the information technology, biotechnology, e-commerce, customer services, and coworking space sectors. There were also relocation demands caused by renovation and reconstruction projects as well as M&A deals.
• The net absorption for the year 2018 was 270,000 sq m, 1.8 times the five-year average annual net absorption of 150,000 sq m.
• At the end of December 2018, Seoul’s average prime rent rose 1.7% and maintenance fee rose 2.2%, both year-on-year (YoY).

Deutsche Asset & Wealth Management changed the name of Kumho Asiana HQ to the Concordian. Offering 60,690 sq m of space, this building is expected to appear on the leasing market in 2019, raising the CBD’s vacancy rate. In 2019, Kumho Asiana Group and SKT are relocating to Centropolis, and law firm Shin & Kim is relocating to D Tower. But their impact on the vacancy rate is expected to be minimal because they are prime-to-prime movements within the CBD.

No new supply is expected for the GBD in 2019. With the current vacancy rate below 8%, the GBD is the most stable performing district of the three business districts. Gangnam N Tower and Luceen Tower, both completed in 2018, had vacancy rates of 73% and 100%, respectively, at the end of December. But GBD vacancy rate is expected to fall below 6% by the end of the year as pre-committed tenants will move in the newly-built buildings.

The YBD’s vacancy rate fell 5.5%p YoY following aggressive lease-marketing efforts and tenant movement to IFC and FKI Tower ahead of the reconstruction of the Teachers’ Pension headquarters. An increase in leasing transactions caused by relocations from other districts and upgrading relocations from secondary buildings within the YBD resulted in net absorption for the year of 111,500 sq m, representing 41% of Seoul’s net absorption. In addition to financial institutions and IT companies related to the financial sector, foreign pharmaceutical, biotechnology, medical and consumer companies are expected to relocate to the YBD. Diversification of tenant sectors is expected to continue. 

For more information about the Seoul office mareket email JoAnn Hong - Director Savills Korea via the contact details below.

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