Unable to Withstand the COVID-19 Shock... Surge in Urgent Commercial Property Sales

Vacancy Rate Already at Record High in Q4
More Empty Stores Due to COVID Impact
As Asking Prices Fall, Buyers Remain Cautious
Investment Returns Expected to Worsen Further

[Asia Economy Reporter Lim Onyu] #A store on the 4th floor of a commercial building near Dapsimni Station in Seongdong-gu, Seoul recently had a "quick sale" tag attached. It was one of the better-located stores, with a gym on the same floor and a large apartment complex nearby. However, as more people started buying health supplements online and the economic downturn worsened due to the spread of the novel coronavirus infection (COVID-19), customer visits sharply declined. The owner, Mr. A, ultimately decided to sell the store.

#A bridal goods store on the 2nd floor of a commercial building near the Express Bus Terminal Station in Seocho-gu, Seoul was also put up for quick sale at 380 million KRW, below market price. The owner, Mr. B, had operated the store for nearly 20 years, but with weddings decreasing due to COVID-19 despite the spring peak season, sales plummeted, leading him to decide to dispose of the store.

The economic downturn triggered by COVID-19 is hitting the commercial real estate market. According to industry sources on the 19th, as consumption has stagnated due to the economic contraction and COVID-19 has compounded the situation, the number of vacant stores has surged, and store owners who can no longer endure the situation have recently begun disposing of their properties one after another. According to the Commercial Real Estate Research Institute, the nationwide vacancy rates for medium-to-large and small commercial properties in the fourth quarter of last year were 11.7% and 6.2%, respectively, marking record highs.

There is a noticeable increase in small-scale commercial property listings. These include not only restaurants but also interior design shops, study rooms, and bridal goods stores. A store within the K complex in Jongno-gu, Seoul, is listed at 680 million KRW, more than 50 million KRW below its original sale price. Cho Hyuntaek, a researcher at the Commercial Real Estate Research Institute, said, "There are many quick-sale listings in commercial properties located within apartment complexes that are sensitive to economic conditions," adding, "Some are located in apartment complexes where COVID-19 cases have been reported, causing sales to plummet and leading owners to urgently list them below market price."

The situation is similar for medium-to-large commercial properties. Although their high sale prices prevent them from reacting as sharply to economic conditions as the stock market does, experts explain that the market is shifting from a seller's market to a buyer's market. Hong Seokwoo, CEO of Gaepo Cham Real Estate, which brokers medium-to-large commercial properties in Seoul and the metropolitan area, said, "In the past, price negotiations for income-generating real estate were impossible, but recently, there was a case where the price of a building in Yeoksam-dong, Gangnam-gu, Seoul, was adjusted from 13.5 billion KRW to 13 billion KRW," adding, "There were also cases where construction companies tried to sell buildings they owned cheaply to secure liquidity."

Although the Bank of Korea has implemented economic stimulus policies, including a significant 0.5 percentage point cut in the base interest rate, buyers remain cautious. Recently, the asking price for a 2nd-floor subdivided commercial property in Pangyo Techno Valley, Bundang-gu, Seongnam-si, dropped from 1.35 billion KRW to 1.25 billion KRW due to the impact of COVID-19. A representative from nearby A Real Estate said, "Buyers tried to negotiate the price down to 1.17 billion KRW, but as the economic situation worsened, they eventually withdrew, and the deal did not go through."

Last year, investment returns for commercial properties nationwide declined compared to the previous year. The average investment return for medium-to-large commercial properties last year was 6.29%, down 0.62 percentage points from 6.91% the previous year. Except for Gwangju, Daejeon, and Jeonnam, returns worsened in all other regions, including Seoul. The same trend was observed for small-scale commercial properties. The average investment return for small-scale commercial properties nationwide last year was 5.56%, down 0.79 percentage points from 6.35% the previous year.

Experts expect the commercial property market outlook to worsen further. Researcher Cho said, "With the ongoing domestic economic downturn and the recent increase in the use of social commerce, delivery applications, and secondhand goods trading applications, offline store sales have already taken a significant hit," adding, "On top of that, the situation has worsened due to COVID-19, making a decline in commercial property investment returns inevitable."

This content was produced with the assistance of AI translation services.