Q3 Seoul Grade A Office Vacancy Rate at 2.5%
[Asia Economy Reporter Kwangho Lee] The vacancy rates in the three Seoul office districts in the third quarter of this year were found to be significant. This is the lowest level recorded since 2009.
According to the ‘2022 Q3 Seoul Grade A Office Market Trends’ report recently published by JLL Korea, a global comprehensive real estate service company, the vacancy rate for Seoul Grade A offices in Q3 2022 was 2.5%, down 1.39 percentage points from the previous quarter. It is the first time since 2009 that the vacancy rates of Grade A offices in all three Seoul districts have fallen below the natural vacancy rate of 5.0%.
In particular, the vacancy rate in the Gangnam district was 0.3%, maintaining a vacancy rate in the 0% range for three consecutive quarters. The vacancy rate in the downtown district recorded 4.9%, down about 2.21 percentage points from the previous quarter, and the Yeouido district recorded 1.9%, down about 1.79 percentage points.
Shim Hyewon, head of the research team at JLL Korea, said, “Given the currently very low vacancy rates across all Seoul districts and limited new supply, the landlord-favorable market is expected to continue for the time being,” adding, “There is also an observed trend of overflowing tenant demand in Gangnam and Pangyo, which are expected to maintain vacancy rates in the 0% range for some time, moving to downtown and Yeouido.”
She further stated, “Considering these phenomena, it is also expected that vacancies that have remained unresolved for a long time in some buildings may be resolved.”
The average monthly effective rent for Seoul Grade A offices in Q3 rose about 6.5% from the previous quarter and 21.4% year-on-year to approximately KRW 118,500 per pyeong, continuously setting new record highs. The average rent-free period across all Seoul districts decreased from 1.8 months last quarter to 1.4 months this quarter, the lowest since Q2 2013.
The average monthly effective rent in the Yeouido district surpassed KRW 100,000 per pyeong for the first time, reaching about KRW 102,800. It increased by 9.6% quarter-on-quarter and 29.8% year-on-year, the steepest rise among the three districts. This was mainly due to most Grade A buildings in Yeouido maintaining zero vacancy rates and lowering rent-free periods. In particular, the IFC’s rent-free period, which averaged about 4 months in Q3 last year, decreased to zero this quarter.
The average monthly effective rent in the downtown district was about KRW 117,600 per pyeong, up 4.9% quarter-on-quarter and 19.3% year-on-year. The Gangnam district’s average monthly effective rent rose to about KRW 130,500 per pyeong, entering the KRW 130,000 range again just one quarter after surpassing the KRW 120,000 range. The average rent-free period also remained at around 0 to 1 month, with effective rents increasing 6.6% quarter-on-quarter and 19.1% year-on-year.
There was no new supply of Grade A or B office buildings in the three districts during Q3. No supply is scheduled for the remaining four quarters of this year, but Grade A offices are expected to be supplied in the three districts in 2023.
In the first half of 2023, an office building with a total floor area of about 15,000 pyeong is planned to be developed and supplied on the site of the former Hyundai Motor Gangnam Central Branch near Gangnam Station.
In the second half, the Brighton Office with about 17,800 pyeong of total floor area and TP Tower (about 42,900 pyeong), the former private school pension building, are scheduled to be completed on the former MBC site in Yeouido. Although TP Tower is not yet completed, pre-lease cases before completion, which are rare in the office market, are being observed.
In the downtown district, the Meritz Fire & Marine Insurance redevelopment project in Bongnae 1st district is expected to supply about 12,200 pyeong of office space. After the remodeling and extension of Seoul Tower (formerly Daewoo Foundation Building) near Seoul Station are completed, about 9,000 pyeong of office space is expected to be supplied.
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