Gangnam's 'Kkoma Building' with Increasing Vacancies, Remodeling Rush

[Asia Economy Reporter Inho Yoo] A five-story "small building" with a site area of 210㎡ located on Nonhyeon-ro in Gangnam-gu, Seoul is currently undergoing active construction.

Due to the decline in rent caused by the COVID-19 pandemic and difficulties in securing tenants, the building owner decided to remodel. The strategy has shifted from relying solely on rental income to increasing the building's asset value through remodeling.

A representative from nearby B Real Estate said, "Recently, there have been many inquiries about old buildings over 20 years old in the Gangnam area," adding, "With the increased vacancy rate due to the economic downturn caused by COVID-19, the intention is to increase building value through remodeling and gain capital gains."

According to the industry on the 28th, small-scale remodeling of old buildings has been continuously occurring in major commercial districts of Gangnam. In major commercial areas such as Gangnam, Yeoksam, Seolleung, and Apgujeong stations, old buildings under construction with fences or barriers around the exterior walls are easily seen.

C, a commercial building specialist broker, said, "The most active remodeling is taking place on Teheran-ro," and added, "Most of the small buildings under five stories and over 20 years old are located just one block off the main road, and remodeling construction involving extension and reconstruction is in full swing."

In fact, more than half of the buildings traded last year in Gangnam-gu and Seocho-gu were old buildings over 20 years old. Experts see the spread of a 'Value-Add' strategy aimed at capital gains through long-term holding or remodeling.

According to an analysis of actual transaction data from the Ministry of Land, Infrastructure and Transport by Bilsanam, a building brokerage specialist, among 2,569 so-called small building transactions under 5 billion KRW in Seoul last year, 71% were buildings over 20 years old. In particular, 1,249 transactions involved buildings over 30 years old. On the other hand, transactions of newly built buildings less than five years old were only 124.

The proportion of old building transactions is even higher in Gangnam and Seocho districts. Among small buildings traded in Gangnam last year, 97 buildings (53%) were over 20 years old. Buildings between 10 and 20 years accounted for 27% (49 buildings), and those under 10 years were 20% (36 buildings).

Experts analyze that as housing regulations become increasingly strict, cash-rich investors are focusing on old buildings. Rather than immediate rental income, they aim for capital gains through remodeling or long-term holding. This is seen as a desperate measure due to rising vacancy rates and deteriorating rental profitability caused by difficulties in securing tenants amid the economic downturn.

However, the profitability of remodeling old buildings must be carefully examined. Remodeling typically reduces costs by about 30% compared to new construction, but long construction periods cause rental income gaps, and if the economic situation worsens, expected capital gains may not materialize.

A representative from D Real Estate said, "Remodeling old buildings should be decided after detailed analysis of market trends, location, transportation conditions, and development prospects."

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