New Over Supply to Lead High Vacancy Rate in 2003 Office Market

Cushman & Wakefield, the world’s largest privately held real estate firm, presents 2013 Seoul Office Market forecast and summarise its key findings on 3 major office districts as below.

Excessive new supply of Grade A buildings resulted in a high vacancy rate in 2011. Abundant new supply led to advantages for tenants, including rent-free periods. However, the concession packages have moderated through the third quarter of 2012 due to demand recovery. Leasing activity remained healthy during the first half of 2012;


Strong demand characterized the CBD area in 2012, as major companies consolidated disparate units into central office spaces. For example, this year saw many conglomerates such as Hyundai E&C, Lotte Asset Development and Amore Pacific moved to new prime building to take advantage of abundant space options.

Although CBD’s vacancy rate has been falling down consistently in the second half of 2012, the expected new office will boost the vacancy rate of CBD in 2013. In CBD area, new office buildings such as the Doryum-dong Building (Doryum 24), N Tower, Myeong-dong 3 District and various Cheongjin district offices are scheduled to be supplied in 2013. Monthly rental growth is expected to continue to show a weak steady trend due to the influence of an increased vacancy rate. The rental rate in the CBD will maintain its stable level or increase slightly by 2% to 3%. However, Landlords will restrict rental-free incentive periods (one or two months) on the back of a recovery in office demand in 2012.


Meanwhile, although some major IT companies begin to move into emerging districts like Pangyo and Bundang because of the limited supply of new building, the lack of new construction and healthy demand will sustain low vacancies in Gangnam which in turn, fuel moderate rent increases. 


The YBD area's leasing market was stable in the first half of 2012, recording a low vacancy rate. However, this trend would not last too long as new prime office buildings including Two IFC, Three IFC and FKI building will be available for lease in 2013. In the YBD area, the vacancy rate for the large-sized prime office buildings is expected to increase.


Although landlords have restricted rental-free incentive periods (one or two months) due to increased demand in 2012, we expect tenant-favorable conditions to prevail in Seoul’s office rental market until some of the excess supply is absorbed. Thus, leasing transactions involving upgrading from lower grade to new prime office buildings is expected to continue in 2013.