"You'll Starve to Death in Gwangju"... Following Hoban and Woomee, Jungheung Construction Also Moves from Gwangju to Seoul [Real Estate AtoZ]

Key Functions to Be Relocated to Seoul
Eulji Twin Tower, Home to Daewoo Engineering & Construction, Considered as New Office
Perfect Storm: Market Contraction, Population Decline, and Surging Unsold Units
Following Hoban and Woomee, Even Jungheung Heads to Seoul... The 'Gwangju Era' Comes to an End

Jungheung Construction, which has grown based in Gwangju Metropolitan City, has entered the process of "leaving Gwangju." This means that Jungheung, which was essentially the last major construction company rooted in the Honam region to hold out, is also beginning to withdraw from the provinces. Industry observers note that the era of large construction companies based in Gwangju has come to an end, as the collapse in housing demand, the accumulation of unsold units, and excessive public contribution requirements have all converged.

Jungheung Construction Group Headquarters. The Asia Business Daily DB.

According to the construction industry on December 20, Jungheung Construction has recently decided internally to relocate key functions such as bidding, development, and planning to Seoul. While the company will nominally keep its headquarters in Gwangju, the actual decision-making and business operations will shift to the Seoul metropolitan area. The Eulji Twin Tower, where Jungheung Construction Group’s affiliate Daewoo Engineering & Construction is located, is being considered as the Seoul office. A Jungheung Construction representative stated, "It is true that there are plans for some functions to move to Seoul next year," adding, "However, nothing has been finalized in detail yet."

This decision is seen as a result of the rapid contraction of Gwangju’s housing market. The population of Gwangju fell to the 1.39 million range this year, dropping below the 1.4 million mark for the first time in 21 years. The population decline rate is among the highest in the country, while the growth rate of households is among the lowest. As the demand base collapsed, the number of unsold units surged. In 2021, there were only 27 unsold units in Gwangju, but as of October this year, the number had soared to 1,431 units.

The postponement of the groundbreaking and sales for the "Champions City" project-a project finance (PF) development worth over 1 trillion won that had generated high expectations-from the second half of this year to next year is also closely related to these market conditions. Champions City is a large-scale project to build 4,315 apartment units, commercial facilities, a hotel, and a park on the former Jeonnam Textile and Ilsin Textile sites. The consortium that secured construction rights, including POSCO E&C and Daewoo Engineering & Construction, has withdrawn from the project one after another, leaving the construction contractor position currently vacant.

Some observers also point to Gwangju City’s excessive public contribution (donation in kind) requirements as a reason for Jungheung’s departure. The cumulative scale of donation in kind required by Gwangju City for major development projects has reached the 1 trillion won range, the highest in the country. For example, in the case of the Champions City project, the planned donation in kind alone is about 590 billion won, which is close to the amount paid by the developer to acquire the land (685 billion won). The expansion project for Shinsegae Department Store has also been delayed due to disagreements over hundreds of billions of won in donation in kind required as a condition for road changes.

Jungheung Construction's Geomdan Hosu Park Station Jungheung S-Class, launched this year. Jungheung Construction.

Even before Jungheung, most large construction companies that grew based in the Honam region had already relocated their headquarters or transferred core functions to the Seoul metropolitan area. Among the “top five Honam-based construction companies”-including Hoban Construction and other Hoban Group affiliates, Woomee Construction, and Kumho Construction-three have their headquarters in Seoul. In the case of Jeil Construction, the headquarters remains in Gwangju, but the company operates a Seoul branch in Dongjak-gu, handling business development, sales, marketing, metropolitan area project management, and financial operations.

Now that even Jungheung is shifting its center of gravity to Seoul, there is a growing likelihood that its Gwangju headquarters will become little more than a "paper address" in the future. Of course, for mid-sized construction companies that lack the financial strength and brand power of the major players, relocating to Seoul does not necessarily guarantee a dramatic improvement in their situation. However, it is seen as a better option than remaining in the provinces. A construction industry insider commented, "There’s a saying that in Seoul you might be crushed to death, but in Gwangju you’ll starve to death," adding, "They are likely aiming to boost their performance by leveraging small-scale redevelopment projects and public-private partnership housing projects in the Seoul metropolitan area."