Seoul Commercial Real Estate Surpasses Pre-COVID Levels... Transaction Volume Up 58% in 2 Years

Gangnam, Seocho, and Songpa Lead... Transaction Volume Up 75% in 2 Years
'Balloon Effect' Due to Housing Market Regulations Like Loans and Taxes
Jung-gu and Yeongdeungpo-gu Decline Amid COVID-19 Impact

A view of an officetel in downtown Seoul. (Photo by Yonhap News)

[Asia Economy Reporter Ryu Tae-min] The commercial and office real estate market, which had frozen due to the impact of COVID-19, is recently showing a clear recovery trend. As the government's successive high-intensity regulations have blocked investment demand, it is interpreted that the commercial and office real estate market is enjoying a spillover benefit.

According to an analysis of data from the Ministry of Land, Infrastructure and Transport's actual transaction price disclosure system by Real Estate R114 on the 25th, the transaction amount of commercial and office buildings in Seoul last year recorded 45.5547 trillion KRW. This is an increase of 16.7139 trillion KRW (57.9%) compared to 28.8408 trillion KRW in 2019 before the COVID-19 pandemic, and it also increased by more than 11 trillion KRW compared to 34.4544 trillion KRW in 2020. The transaction volume also recorded 17,824 cases last year, more than 16,441 cases in 2019.

Notable Increase in Gangnam 3 Districts with High ‘Future Value’

Looking at the transaction amount by autonomous district, the increase in the Gangnam 3 districts (Gangnam, Seocho, Songpa) stood out. The combined transaction amount of the three districts last year was 16.9801 trillion KRW, increasing by 7.2633 trillion KRW over two years, accounting for 65.4% of the total increase. In particular, Gangnam-gu increased about twofold from 5.522 trillion KRW in 2019 to 10.9157 trillion KRW last year. Seocho-gu increased by 1.6795 trillion KRW (68.2%) from 2.4596 trillion KRW to 4.1391 trillion KRW during the same period.

The transaction volume also showed an increasing trend. The number of transactions in the Gangnam 3 districts rose from 2,824 cases in 2019 to 4,009 cases last year, an increase of 1,185 cases (41.9%). Seocho-gu increased by 613 cases (72%) from 851 to 1,464 cases, and Gangnam-gu (1,213 → 1,602 cases) and Songpa-gu (760 → 943 cases) also showed an upward trend.

The sharp increase in commercial and office building transactions is interpreted as a balloon effect due to strengthened regulations on the housing market. Ye Kyung-hee, senior researcher at Real Estate R114, explained, “As the loan and tax burden on high-priced housing increased, abundant liquidity in the market flowed into the building market. Especially in the Gangnam area, due to development prospects and a large floating population, the future value is high, making it advantageous in terms of capital gains and liquidity, which seems to have attracted investors.”

Decrease in Jung-gu and Yeongdeungpo-gu Hit Hard by COVID-19

On the other hand, Jung-gu and Yeongdeungpo-gu, which were previously considered central commercial districts, showed a declining trend. Jung-gu's transaction amount was similar to Gangnam-gu at 5.0732 trillion KRW in 2019 but decreased by 606.9 billion KRW (11.9%) to 4.4663 trillion KRW last year. The number of transactions also decreased by 349 cases (29.9%) from 1,514 to 1,165 during the same period. Yeongdeungpo-gu's transaction amount fell by 685.8 billion KRW (30.3%) from 2.2599 trillion KRW to 1.5741 trillion KRW, and the number of transactions decreased by 567 cases from 1,609 to 1,042.

Researcher Ye said, “The impact is large because areas that earned profits from tourist demand such as Myeongdong and Dongdaemun were hit hard by COVID-19. Also, the construction of large office buildings absorbing tenant demand seems to have made nearby commercial districts relatively less popular.”

Meanwhile, changes in the number of transactions also differed by the main use of buildings. From 2019 to last year, based on all of Seoul, the number of transactions increased for facilities used as Secondary Neighborhood Living (4,798 → 6,616), Primary Neighborhood Living (3,703 → 4,604), and Office (1,626 → 2,393), while transactions decreased for Lodging (628 → 317) and Education & Research (695 → 355).