[Report] Goyang Hyangdong Knowledge Industry Center Turns into Vacancy Graveyard Due to Oversupply "Rumored to Have Cheap Rent"

Five Knowledge Industry Centers Fully Occupied by Early This Year
Low Rent Set to Secure Tenant Vehicle Demand
"Deposit Forfeited, Seller Hopes to Sell, Difficult to Cancel Pre-sale Rights"
Number of Knowledge Industry Centers Going to Auction Increasing Annually
Gyeonggi Knowledge Industry Center Sale Rate at 27%, Sale Price Rate Only 67%

"The rent for Hyangdong Knowledge Industry Center is already rumored to be cheap. The monthly rent is around 10,000 to 15,000 KRW per pyeong. The sale price has dropped by 20% compared to the pre-sale price. In some cases, it has fallen by more than 30%. Since the interest on loans is higher than the rent, many owners are willing to sell at a loss." (Representative of Hyangdong A Real Estate Agency)

Most of the commercial spaces on the first floor of Hyundai Terra Tower Hyangdong, a knowledge industry center located in Hyangdong District, Goyang, are vacant. Photo by Jinju Han

Last month, most of the commercial spaces and more than half of the Knowledge Industry Center in ‘Hyundea Terra Tower Hyangdong’ in Hyangdong District, Goyang City, Gyeonggi Province, were empty. Although the lower-level commercial spaces facing the main road had a banner congratulating the move-in, except for a convenience store and two real estate offices, all were vacant. Colorful banners saying ‘For Lease’ were attached to each commercial unit, and banners specifying desired business types such as ‘Pharmacy Space’ and ‘Telecom Company Space’ were also visible. Nearby, all first-floor commercial spaces in ‘Master One DMC’ were also vacant.

The situation is no different at ‘Hyundea Terra Tower DMC,’ located two blocks away. Although it received occupancy approval in February, many places inside had warning signs saying ‘Do not enter without the owner’s permission who has the key’ and banners for lease inquiries. A representative from nearby B Real Estate said, "Because the economy is not good, there are almost no sales. There are over 1,000 units here, but it seems only about half are occupied," adding, "If the rent is high, tenants cannot be found, so they are lowering it as much as possible to attract tenants."

A banner for lease and sale inquiries is posted inside Hyundai Terra Tower DMC. Photo by Jinju Han

‘Vacancy Graveyard’ Knowledge Industry Centers, Rent Plummets

There are currently six Knowledge Industry Centers in the Hyangdong District of Goyang, most of which started occupancy in the first half of this year. Starting with GL Metro City Hyangdong (5BL), which began occupancy in July last year, DMC Flex Desiang (9BL) in February, Hyundea Terra Tower DMC (8BL) in February, DMC Master One (7BL) in March, and Hyundea Terra Tower Hyangdong (6BL) in March all began occupancy around the same time. With over 4,000 Knowledge Industry Center units supplied in Hyangdong District alone, rents have dropped to around 10,000 KRW per pyeong (3.3㎡). For example, for 10 pyeong, Hyundea Terra Tower DMC and Master One require a deposit of 3 million KRW and monthly rent of 300,000 KRW, while DMC Flex Desiang requires a deposit of 3 million KRW and monthly rent of about 350,000 KRW.

Looking at the number of rental listings through Naver Real Estate, there are between 700 and 1,100 listings per Knowledge Industry Center. There are also over 1,000 vacant office spaces in commercial districts. The occupancy rates of Hyangdong Knowledge Industry Centers are estimated at 30% for DMC Master One, 40% for Hyundea Terra Tower Hyangdong, 40% for DMC Flex Desiang, and 70% for GL Metro City Hyangdong.

Exterior view of Hyangdong District Knowledge Industry Center Hyundai Terra Tower DMC building

Knowledge Industry Centers were formerly called apartment-style factories. They are collective buildings where manufacturing, knowledge industry, and information communication industry workplaces and support facilities (neighborhood living and sales facilities) can coexist. During the real estate boom, they were noted as an alternative investment to apartments. Investors flocked because loans could be obtained up to 80% of the pre-sale price. However, the surge in supply amid the pre-sale fever and the sharp rise in interest rates since the second half of 2022 dampened investment sentiment.

The average annual number of permits for Knowledge Industry Centers from 2018 to 2023 is about 108, roughly double the average annual permits (56) from 2010 to 2017. According to the Korea Industrial Complex Corporation, as of the end of June, there are a total of 1,540 Knowledge Industry Centers. Of these, 716 (46%) are concentrated in Gyeonggi Province. Including Seoul (390) and Incheon (80), 1,186 (77%) are concentrated in the metropolitan area.

Cancellation of Pre-sale Rights and Forfeiture of Deposits to Sell

Among the pre-sale investors who invested in Hyangdong Knowledge Industry Centers during the pre-sale boom, many have yet to pay the remaining balance. They have tried to dispose of their units by forfeiting deposits and even enduring negative premiums, but there are no buyers. A representative from A Real Estate said, "There are more than two Knowledge Industry Centers with over 200 units each where the remaining balance has not been paid recently," adding, "If the contract cancellation is accepted, they can forfeit the deposit and pay interest and other costs, but if the developer lacks funds, cancellation is impossible."

As profitability of Knowledge Industry Centers declines, banks have begun tightening loan regulations. Since the loan limit is based on the sale price, which is now lower than the pre-sale price, the financial burden on pre-sale investors has increased. A bank official said, "Loan limits vary by project, and the story of loans up to 80% of the pre-sale price is really from a long time ago," adding, "Loans for Knowledge Industry Centers are classified as business loans, and factors such as the occupancy rate of the center are reflected more than individual credit scores."

The representative of A Real Estate said, "During the COVID-19 period, loan interest rates were around 3%, but now they have exceeded 5%. Even if rent is collected from tenants, additional money must be added to pay interest, so the burden is heavy," adding, "Those without financial strength are handing over properties to court auctions due to arrears."

DMC Flex Desiang exterior view.

Knowledge Industry Centers Turned Cold, Surge in Auctions

The number of Knowledge Industry Center properties going to auction has surged since the second half of 2022. The number of auctions for Knowledge Industry Centers has been increasing annually. As auction properties flood the market, the success rate of auctions is decreasing, and the auction price ratio (sale price compared to appraisal price) is gradually falling. According to Gigi Auction, from January to October this year, 1,156 Knowledge Industry Center auctions were conducted, but only 309 (26.79%) were successful. The sale rate dropped sharply from 44.68% in 2022 to 30.06% last year.

The auction price ratio for Knowledge Industry Centers decreased from 86.92% in 2022 to 71.52% last year, and to 65.64% from January to October this year. Particularly, 60% (704 cases) of auctioned Knowledge Industry Center properties are from Gyeonggi Province, where many centers are concentrated. The sale rate in Gyeonggi Province is only 26.98% (177 cases), and the auction price ratio is 66.92%. The number of bidders participating in auctions nationwide decreased from 5.43 in 2021 to 2.82 this year (January to October).

Hana Financial Research Institute pointed out, "New towns and housing development districts have low demand for office use by companies, and although development costs are high, they are mixed with residential areas, limiting their use as factories," adding, "Since large-scale self-sufficient land is often included and Knowledge Industry Centers are promoted in new towns or housing development districts to attract companies, supply-demand imbalances may continue in the future."

Improving Transportation Issues is the Top Priority

To resolve vacancies in Knowledge Industry Centers around Hyangdong, there are calls to improve transportation conditions and relax restrictions on tenant industries. There is no subway in Hyangdong District, so commuting to Seoul requires taking a bus from Gayang Station on Line 9 or bus number 730 from DMC Station. On the 3rd, the Ministry of Land, Infrastructure and Transport approved the basic plan for the Goyang-Eunpyeong Line (from Saejeol Station to Goyang City Hall Station, total length 15 km). One station (Hyangdong District Station) will be built in Hyangdong District, scheduled to open in 2031. Residents of Hyangdong District have expressed dissatisfaction through the National Petition Board, urging the prompt start of construction for the Goyang Line Hyangdong District Station.

DMC Flex D'cian 1st floor commercial space. Photo by Jinju Han

In May, Goyang City announced a public notice adding 17 industries to the Knowledge Industry Centers, including service industries (legal, accounting, tax, etc.), smart farm vertical farms, broadcasting, and OEM manufacturing. The representative of A Real Estate said, "If they allow facilities like exercise rooms to be placed underground, demand from workers and residents will increase, making it somewhat easier to fill commercial tenants in the Knowledge Industry Centers."

Yoon Soo-min, a real estate specialist at NH Nonghyup Bank, said, "There are a total of 11 blocks of Knowledge Industry Centers in Hyangdong District, but only 5 to 6 blocks are occupied. This is about five times more than Gasan relative to the size of the area. The number of households in the surrounding area is about 10,000, but the supply of commercial facilities and Knowledge Industry Centers is excessive," adding, "If new towns like Changneung are occupied, demand may increase somewhat, but it will take time."