Sunday 25 February 2018

Weak demand in Asia means vacant offices in Korea

Office rents in Seioul in Korea are sliding
Office rents in Seioul in Korea are sliding

Kyungji Cho

Office vacancies in Seoul will probably remain high this year due to weakened demand for space from companies as South Korea's economic growth slows, according to Savills.

The average vacancy rate of prime offices in Seoul soared to 14.1pc at the end of September, compared with 12.5pc at the end of 2013 and 8.1pc in 2012, data from the real estate services provider showed. The vacancy rate in Seoul's central business district was 15.7pc, while the city's Gangnam district -- made famous by singer Psy's viral hit "Gangnam Style" -- had a vacancy rate of 10.4pc.

The Bank of Korea lowered its 2015 economic growth forecast to 2.7pc last month and reduced its inflation estimate while holding the key interest rate unchanged at a record low. The creditworthiness of South Korean companies is worsening at the fastest pace in at least a decade as the export-led economy falters. Overseas shipments fell 15.8pc last month from a year earlier, the most since 2009.

"It's become difficult to fill space because of weakened demand from companies," said JoAnn Hong, a research and consultancy director at Savills Korea Co. in Seoul. "Building owners are offering various incentives for tenants such as providing rent-free periods or covering some relocation costs to fill space."

The office vacancy rate in Yeouido, home of the stock exchange and known locally as Korea's Wall Street, was 16.5pc.

The price per square foot for office space in Seoul has fallen 0.2pc this year to $434.7 as of the end of September, Real Capital Analytics. data show.

The capitalization rate, or yield on investment, in the city was little changed from December at 5.42pc, versus the 2.02pc yield on five-year government bonds.

"Supply in new buildings decreased from this year," said Hong. "Vacancies are likely to improve slightly next year considering the dwindling supplies and the prospects for economic recovery." (Bloomberg)

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