Gangnam Achieves 'Zero Vacancy'... Seoul Office Vacancy Rate Hits 13-Year Low in Q1

Panoramic view of Seoul area (Photo by Asia Economy DB)

[Asia Economy Reporter Ryu Taemin] The average vacancy rate of office buildings in Seoul has dropped to 3.5%, marking the lowest level in 13 years. In particular, the Gangnam area, where demand is concentrated, is showing a 'zero vacancy' status. Despite the increase in companies seeking to lease recently, the shortage of supply in large buildings has led to a continuous decline in vacancy rates for four consecutive quarters, creating a fiercely competitive atmosphere among tenants.

According to the office market report published by Cushman & Wakefield on the 27th, the average vacancy rate of Grade A office buildings in Seoul in the first quarter of this year was 3.5%, down 1.7 percentage points from the previous quarter. This is the lowest figure in 13 years since the first quarter of 2009. The report also shows that the average vacancy rate of Grade A office buildings has declined for four consecutive quarters since the first quarter of last year.

By major districts in Seoul, the average vacancy rate in the Gangnam Business District (GBD) fell by 0.2 percentage points to 0.4%, recording a vacancy rate in the 0% range. Dyson Korea moved into Gangnam Finance Center, and SSG and Moloco signed contracts at Centerfield. In Casequare Gangnam 2, which was supplied in the first quarter, leases by IT companies including Lunit continued, maintaining an unprecedentedly low vacancy rate. Cushman & Wakefield explained that due to the shortage of vacant space, competition among tenants has intensified, causing benefits such as rent-free periods previously offered during lease contracts to disappear and actual rents to rise.

The vacancy rate in the Yeouido Business District (YBD) dropped 4.2 percentage points from the previous quarter to 3.1%, the largest decrease among the districts. This is mainly because the leasing demand from IT companies that could not find vacancies in the Gangnam area since last year expanded to Yeouido, rapidly reducing vacancies especially in prime-grade offices that had relatively long-term vacancies. Additionally, the signing of lease contracts for Park One Tower 1 and Tower 2 (NH Financial Tower) helped resolve large vacancies. Notably, HMM decided to relocate to Park One Tower 1, and SK Signet to Tower 2.

The vacancy rate in the Central Business District (CBD) fell 2.1 percentage points to 6.4%. Large vacancies were resolved as Hyundai Capital signed leases for 11 floors in Grand Central, followed by contracts with the Korea Inclusive Finance Agency and POSCO International. Furthermore, active leasing activities took place with Korea Toyota Motor signing at Center One WEST, SK Group companies at Jongno Tower, and Celine Korea at Casequare City.

The decline in vacancy rates is attributed to the recent increase in corporate leasing demand, while the supply of large buildings to support this demand has been insufficient. Cushman & Wakefield expects that “since new office supply will remain limited in the future, a landlord-favored market is likely to continue for the time being.”

Meanwhile, the office transaction volume in Seoul and Bundang districts in the first quarter was about 3.1 trillion KRW. This is more than three times the previous quarter’s level of about 1 trillion KRW and about 45% higher compared to the same period last year. The sales of Pangyo Alpharium Tower and E-Mart headquarters in Seongsu-dong, which had been underway since last year, were completed, each boasting transaction volumes exceeding 1 trillion KRW. Recently, cases of office purchases through blind funds and REITs have been increasing, such as Koramco Asset Trust acquiring Gangnam P Tower from Hangang Asset Management for 424.5 billion KRW using a blind REIT.