The vacancy rate in office buildings in major business districts in Seoul has reached a five-year high due to a toxic cocktail of an oversupply and a prolonged property market slump

2013-06-24 18:05

Landmark buildings stand empty

Office vacancy rate at highest level since 2008 crisis
By Yi Whan-woo
The vacancy rate in office buildings in major business districts in Seoul has reached a five-year high due to a toxic cocktail of an oversupply and a prolonged property market slump.According to a survey conducted by Propertree, a local real estate consulting agency, the overall vacancy rate between April and May among 327 office buildings in the nation’s capital with an area of at least 33,000 square kilometers reached 14.1 percent, the highest since 2008 when the country was hit by the global economic crisis.
Of the three key areas, the central Seoul area around Gwanghwamun and Jongno had a vacancy rate of 18.5 percent, up from 16.2 percent in the fourth quarter of last year. The financial districts in Yeouido posted a rate of 15.2 percent, an increase from 12.7 percent during the same period. The Gangnam area, including Tehran Street where the most expensive office buildings in southern Seoul are located posted 8.7 percent, a 0.7 percent increase during the cited period.
“The trend will continue as construction of more office buildings are completed throughout this year,” said Propertree CEO Ko Shin.
In the downtown area, at least five office buildings were or will be built between 2012 and 2014, according to Propertree. One of them is Gwanghwamun State Tower with 29 floors, including six underground floors. It has had difficulty in acquiring tenants since it was built last year because of other competitors in the area such as The K-Twin Towers.
In Yeouido, a 56-story building named after the Federation of Korean Industries, a business lobby group, will be completed by July. The tower, which has an area of 168,000 square kilometers, will join the International Finance Center (IFC) buildings as the newest in the nation’s largest financial district. IFC, which was completed last year, has a less-than-expected number of tenants because of high rental prices.
The local branch of an international real estate service firm confirmed Ko’s projection.
“The new supply entering the central business district and Yeouido business district will increase the vacancy rate in 2013,” Cushman & Wakefield Korea stated in its report for the first quarter. “Although scheduled new supply is much less than before, we expect tenant-favorable conditions to continue until 2015.”
The high vacancy rate has resulted in lower monthly rental prices, with a number of landlords offering their office spaces for free up to four months, according to Propertree.
The lower prices have prompted companies in Gangnam to move to Gwanghwamum and nearby areas. For instance, Microsoft Korea will move its office at Tehran Street to The K-Twin Towers later this year.
An official at Cushman & Wakefield Korea said the high vacancy rate came is the result of the completion of many buildings about the same period.
“When those buildings were being built under the redevelopment project, the vacancy rate was only less than 10 percent, so investors rushed to participate in the project,” said Tony Yoon, the head of Corporate Occupier and Investor Services at Cushman & Wakefield Korea.
“Then, the global economic crisis came in 2008 and caused the completion of some buildings to be delayed.”
The investors, however, will be able to profit in the long term, according to Propertree CEO Ko.
“Investors in office buildings usually make investments with a long-term projection,” she said. They will run the offices for 10 years, after which their profit, including capital gain, will exceed their loss in the long term.”