[Asia Economy Reporter Ryu Tae-min] The knowledge industry center market, which had been enjoying a windfall from government housing market regulations, is rapidly cooling down recently. Due to interest rate hikes significantly reducing yields, along with oversupply and economic recession causing higher vacancy rates, investors are turning away. In particular, even urgent sale properties bearing losses of tens of millions of won in 'minus premiums' are failing to find new owners, leading to an accumulation of listings.
According to Knowledge Industry Center114 on the 9th, the contract area of 185.8㎡ at 'Seoul Forest Pohyu' in Seongsu-dong, Seoul, was traded for 1.9 billion won on the 4th of last month. This marks the third record high this year at 33.8 million won per 3.3㎡. Considering that the price per 3.3㎡ was less than 10 million won when it was first occupied in 2016, the price has more than tripled in six years.
A knowledge industry center refers to buildings of three or more floors where companies engaged in manufacturing, knowledge industries, and related fields can move in. It originated from the 'apartment-style factories' that began to be established in the 1990s in areas such as Guro and Gasan Digital Complex, and Seongsu-dong in Seoul.
The knowledge industry center market began to soar sharply from 2019 as investment demand surged due to strong regulations on the housing market. Since knowledge industry centers are excluded from housing counts, they are exempt from various taxes such as property tax and capital gains tax. Especially, if the knowledge industry center was not purchased in an industrial complex, resale of pre-sale rights is possible, and loans can be obtained up to 80% of the sale price, making financing easier.
However, recently, the knowledge industry center market is declining in areas with poorer location conditions. On online real estate communities, there are urgent sale posts where low-floor units of the D Knowledge Industry Center in the Knowledge Information Center in Gwacheon, Gyeonggi Province, are listed at a 30 million won 'minus premium' (price lower than the sale price), indicating a willingness to accept losses. There was also a post about urgent sale of mid-floor units at the G Knowledge Industry Center in Okgil-dong, Bucheon, Gyeonggi Province, at a 68 million won minus premium. Additionally, cases of knowledge industry center pre-sale rights in outer Gyeonggi areas such as Goyang and Gimpo being listed at minus premiums have been found.
As the market freezes due to a transaction cliff, the number of auctioned properties has also increased. According to Shinhan Auction SA, there were a total of 307 individual knowledge industry center units auctioned last year, the highest number in the past five years. Among them, Seoul had 53 cases, the most since 2018. Gyeonggi Province also saw an increase in listings with 127 cases in 2020 and 121 cases last year compared to previous years.
The decline in the knowledge industry center market is analyzed to be due to a significant increase in supply. Song Seung-hyun, CEO of City and Economy, explained, "During the boom, approvals for knowledge industry center completions increased significantly, leading to a flood of supply in the Gyeonggi area. On the other hand, Seoul has only a few areas such as Seongsu, Munjeong, and Guro where knowledge industry centers can be established, so scarcity is high, resulting in regional polarization."
There is also advice to approach the income-generating real estate market cautiously as it is directly hit by the impact of interest rate hikes. Since financing heavily depends on loans and properties purchased at high pre-sale prices during the boom have gradually decreasing yields.
Experts also explain that market conditions can change rapidly due to economic recession. CEO Song said, "Since many tenants residing in knowledge industry centers are corporations, the longer the recession lasts, the more rental demand decreases, inevitably increasing vacancy rates. Areas outside Seoul, where corporate headquarters and core businesses are concentrated, are more likely to face adjustments," he advised.
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