Investments totalled KRW630.3 billion during the quarter, the lowest since Q3 2014.
In Q2/2024, the Seoul office investment market saw a sharp decline in transaction volume due to delays in securing investment funds.
According to a Savills report, quarterly transaction volume recorded KRW630.3 billion, representing 25% of the previous quarter’s volume and 19% of the volume from the same period last year. This marks the lowest quarterly transaction volume in 10 years since Q3/2014, when it was KRW484.4 billion.
Here’s more from Savills:
Prolonged funding periods have extended deal closures to over a year for larger transactions. However, with several large-scale deals in progress, transaction volume is expected to rebound in the second half of the year, which will likely bring the annual volume in line with last year’s total.
Capstone Asset Management’s blind fund, backed by Shinsegae Property, acquired Icon Yeoksam from CapitaLand Investment Management for KRW204.3 billion (KRW34.5 million per pyeong). The asset, located a five minute walk from Seolleung Station, is highly accessible and maintains a 0% vacancy rate with high-growth IT and e-commerce tenants.
Hyunjin Group purchased WeWork Tower near Seolleung Station from Shinhan REITs Management for KRW147.0 billion (KRW32.24 million per pyeong). This asset, originally completed in 1993 and remodeled in 2017, is considered to enjoy steady cash flow from its long-term master-lease to WeWork.
Amid uncertainty about the timing of an upcoming policy rate cut and its impact on market interest rates, investors are delaying decisions on new investments. Even though robust leasing market indicators have prevented downward adjustments in pricing for Seoul offices, unsold assets are accumulating due to ongoing market uncertainty.
Institutional investors are likely to continue to prefer offices in GBD due to its relatively high level of occupier demand and the resulting rental growth. Transactions are active across all districts, with ongoing sales including The Asset Gangnam, KOREIT Tower, and NC Tower 1 in GBD; Jeongdong Building, D Tower Donuimun, and Namsan Square in CBD; and Mirae Asset Securities Yeouido in YBD. Numerous buildings are also under consideration for sale, indicating a steady flow of properties hitting the market in the second half of the year.
For Q2/2024, the gross cap. rate for Seoul prime offices, based on face rents, is estimated to be in the high-4% range. Effective cap rates, considering the minimum level of incentives offered for new lease agreements, are around the low-4% range. The yield on 5-year government bonds rose by 8bps from the previous quarter.
