High Prices Near Transit Stations, Backstreets at 3-Year-Old Levels
If Rental Income Offsets Expenses Like Interest,
It Is Recommended to Delay the Sale Timing
The polarization phenomenon in the Gangnam commercial real estate market is intensifying. As the economic slowdown takes hold, areas with relatively low demand are being hit, while prime locations are seeing prices rise.
According to data from RSquare, a commercial real estate data specialist company, which investigated actual transaction prices of commercial and office real estate in the Gangnam area in the second half of last year and this year, a commercial facility near Sinsa Station on Seoul Subway Line 3 and the Shinbundang Line was sold for 50 billion KRW in December last year. Based on land area, this amounts to 500 million KRW per 3.3㎡, breaking the highest price record in Sinsa-dong.
A commercial facility near Sinnonhyeon Station on Subway Line 9 and the Shinbundang Line was also sold for 105 billion KRW in July last year. The price reached 500 million KRW per 3.3㎡ of land area. The previous transaction was made in January 2020 for 50 billion KRW, meaning the price more than doubled in just two and a half years. An office facility in Yeoksam-dong was sold for 60 billion KRW in August last year. The transaction price per 3.3㎡ of land area and gross floor area of the building reached 593.67 million KRW and 54.84 million KRW, respectively.
On the other hand, properties located far from subway stations or on side streets with relatively low demand have returned to price levels from two to three years ago. In December last year, a commercial facility in Samseong-dong was traded at about 110 million KRW per 3.3㎡ of land area. Compared to surrounding transaction cases, this is roughly the price level from about three years ago, suggesting a quick sale. A commercial facility on a side street near Sinnonhyeon Station was also traded in November last year at about 97 million KRW per 3.3㎡ of land area, which corresponds to the price level from two years ago.
According to the Korea Real Estate Board, the number of commercial and office building transactions in Seoul in the second half of last year was 732, a decrease of 58.6%. This is interpreted as the commercial real estate market shrinking due to worsening business conditions for companies.
Lee Yong-seok, team leader of the Small and Medium Asset Team at RSquare Investment Advisory Headquarters, said, "Even in the first half of 2022, most transactions in the Gangnam area were at record high prices. Although top-grade location properties are still traded at the highest prices, recently, the number of properties with Gangnam location conditions being sold quickly at discounted prices has increased, showing polarization in the market."
Lee advised, "Asset owners considering selling small and medium-sized commercial real estate are recommended to delay the sale as much as possible if rental income offsets expenses such as interest and management costs. If maintaining the property is difficult and sale is necessary, active price adjustments should be considered."
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