Seoul Office Space Running Short
By Jane Han
Staff Reporter
Last July, U.S. investment powerhouse Morgan Stanley paid a record price of $1 billion for a 23-story downtown Seoul office building. A big deal, but experts say it's only an example of similar transactions in the future and reflection of the robust local office space industry.
``Supply doesn't meet demand here,'' said Seoul associate director Chris Yoon at CB Richard Ellis (CBRE), a global commercial property and real estate services adviser. ``So naturally, prices have been taking a sharp upward trend.''
Over the past five years, overall office space prices have jumped 20-30 percent and continue to see about a 4-5 percent rise each year, said Yoon. But he added that vacancy rates are still the lowest-ever despite snowballing price tags.
A recent survey of 150 Seoul area buildings done by Kyobo Realco, a property management subsidiary of Kyobo Life, showed that the November vacancy rate stood at just below 0.5 percent.
Especially in the Gangnam district, annually, an average of just 1 percent of office space was empty, which is lower than the rate in New York (4 percent) and similar to those in London and Hong Kong.
The situation is clearly a sign of a commercial boom, says Yoon, attributing the growth not only to usage, but also to growing foreign investment.
Experts say foreign investors are seeing Asian property assets as attractive thanks to the stable returns they yield on the back of tight supply.
According to Jones Lang LaSalle, a real estate consulting and brokerage firm, investment by global players in the Asia Pacific region's commercial real estate reached $94 billion in 2006, up 42 percent from 2005.
Before Morgan Stanley's purchase of the Daewoo Engineering headquarters, some other major transactions include Singapore's Government Investment Corp. (GIC)'s $460 million buy of the 30-story Seoul Finance Center in 2000 and $900 million pickup of the 45-story Star Tower in southern Seoul.
On future outlook, Yoon says the demand for office space will continue to outmatch supply for years.
``While the growth of the financial sector will continue to drive up need for more and better office space, the existing buildings' renovation pace won't catch up,'' he said, explaining that major global investment banks, along with domestic institutions, have expanded their presence here.
But despite these roll-out plans, real estate researchers say Tokyo and Seoul are among the top two Asian cities that struggle with little ``Grade A'' work space.
``It's ironic, but even though businesses say they're not performing well, they seem to take up more and more space to operate,'' said Yoon.
He said, currently, one person on average takes up about 5 square meters of space at work, but a few years later, they'll need double the amount because a growing number of workers are using more than two computers.
``Not only computers, but people seem to be needing more personal space to get work done, and that leads to a boom in this big market.'' he said.