Sluggish office rents expected to continue
By Tony Yoon
Tony Yoon is the head of corporate occupier and investor services, Cushman & Wakefield Korea.
Most landlords decided to freeze their monthly rental charges during the period for renewing leasing contracts. They have decided to provide flexible rent-free periods instead of cutting monthly rent charges.
From this year onwards, the method of calculation has changed to weighted averages reflecting vacancy rates and a decrease in rental rates compared to last year. If the rental rate was calculated by the same method as last year, the rental rate would have increased slightly this year.
Clearly it is a tenant’s market and landlords understand the need to provide various financial incentives to attract new occupiers and keep the ones they have. The slowdown in monthly rental growth that began in 2011 is expected to continue until the end of 2013.
New supply impact in central business districts and Yeouido
The vacancy rate in the “central business district,” where most of the new supply is concentrated, increased to 13.5 percent. The new supply of State Tower Gwanghwamun in the Cheongjin 5 district and Asterium Seoul building near Seoul Station contributed to an increase in the vacancy rate during the first quarter of 2013.
Although the scheduled new supply is much less than in the previous year, Doryeom-dong Building and N Tower are scheduled to come on stream during the first half of 2013. Thus, the expected new office space supply will boost vacancy rates in 2013.
In the last quarter of 2012, the vacancy rate in Yeouido peaked to its highest level in history due to the completion of the two landmark towers of the International Financial Center (IFC).
The second IFC building, which was completed in the fourth quarter of 2012, is known to have signed a lease agreement with Nivea and the Korea Medical Foundation. However, IFC2's vacancy rate was still more than 80 percent.
The third IFC building is yet to secure any tenants. In addition, the Federation of Korean Industry hall, with a gross floor area of 168,681 square meters, will be completed in 2013. In Yeouido, the market for grade A office buildings will suffer from a rising vacancy rate due to the new supply of prime buildings.
Vacancies in Gangnam begin to increase
Despite the limited supply of new buildings, the vacancy rate in Gangnam increased to 7.6 percent due to tenant outflow from the district. Most Samsung Group affiliates have moved to the Samsung Global Engineering Center, which was newly completed in Gangdong-gu. Also, LIG Group affiliates, which previously leased offices in Prudential Tower, moved to the company's headquarters in Hapjeong-dong.
In addition, NCsoft will relocate from the NCsoft building in Gangnam to a building in Pangyo. NCsoft will vacate their offices in the third quarter of 2013. Thus, the building will be empty in the same quarter.
K-Office, a grade B office building with a total floor area of 15,306 square meters, will be completed in the first quarter of 2013.
The supply of grade A office buildings in Gangnam is still limited. Although the business district has remained the most stable due to the limited supply of new buildings, the vacancy rate there is forecast to increase, resulting from the expected relocation of game companies.
Tony Yoon is the head of corporate occupier and investor services, Cushman & Wakefield Korea.