"First Time Experiencing Such a Recession" Empty Downtown Commercial Areas... Prolonged Store Closures

On the afternoon of the 10th, the streets of Myeongdong, Seoul, were completely empty with no pedestrians passing by. Photo by Ryu Taemin

[Asia Economy Reporter Ryu Tae-min] "It seems more serious than during wartime. There are really too few customers..."

On the 23rd, Kang Mo (65), who has operated a clothing store in Myeongdong, Jung-gu, Seoul for 43 years, wore a troubled expression. Looking around, the number of people passing by on the street could be counted on one hand. Although restaurants and clothing stores were open, there were almost no customers, leaving them practically closed. At the Uniqlo Myeongdong Central Branch, which set a record for the highest daily sales of 2 billion KRW on its opening day in 2011, a sign was posted stating that operations would end on January 31 next year.

The scene on Myeongdong street was hardly befitting of its name as a "tourist special zone." Visits from Chinese tourists, the main customers, stopped due to the COVID-19 pandemic, and even domestic visitors decreased as social distancing levels were raised. Because of the high dependence on foreign tourist consumption, the impact of social distancing was equally severe.

On the main streets of Myeongdong, every other building had a "For Rent" sign. Even on "Myeongdong 8-gil," once the busiest street filled with famous cosmetics and clothing stores, there were more than 20 vacant stores. As the COVID-19 situation continued, more merchants were leaving the Myeongdong commercial district altogether.

Can’t Endure Anymore... Stores Giving Up Operations One After Another

Kang also plans to vacate his store once his lease expires, as there is no sign of the COVID-19 situation ending. He said, "The landlord temporarily lowered the rent, but since sales are not coming in, it’s unbearable. Most of the expensive first-floor stores cannot endure and are leaving." A representative from a local real estate agency, A, said, "Even if they don’t receive key money, no one wants to move in. Various measures are being taken, such as deducting overdue rent from deposits, but self-employed people cannot even cover labor costs."

According to the "2023 Q3 Commercial Real Estate Lease Trend Survey" released by the Korea Real Estate Agency in October this year, the vacancy rate for small-scale stores (up to 2 floors, total floor area under 330㎡) in Myeongdong in Q3 was 28.5%, meaning nearly one in three stores was vacant. Considering that the vacancy rate was 0% from Q4 last year through Q2 this year, the vacancy rate sharply increased in Q3. Among 49 commercial districts in Seoul, Myeongdong showed the largest increase in vacancy rate (for small-scale stores) compared to the previous quarter.

Both Tenants and Landlords Struggling

The increase in vacancy rates is also affecting landlords. Real estate agent B explained, "As the commercial district worsened due to COVID-19, most landlords are trying to retain tenants by lowering rents by 30-50%. However, as rental income decreases, some landlords cannot even cover loan interest on their commercial buildings." The rent for small-scale stores in Myeongdong was 208,400 KRW per 1㎡ in Q3 this year, down 20.4% from 262,000 KRW in Q4 last year.

The situation in Jongno, another major downtown commercial district along with Myeongdong, was not much different. On the afternoon of the 10th, looking around the main road between Jonggak Station and Jongno 3-ga Station, there were more than 10 vacant stores with "For Rent" signs. Most of the vacant stores were prime first-floor locations. These were previously occupied by famous brands and large franchises such as Adidas, Nike, and Angel-in-us. In the past, companies would endure high rents to promote their brands by opening flagship stores, but even that has disappeared. Some buildings were entirely up for lease.

The vacancy rate for small-scale stores in Jongno in Q3 this year was 10.2%, sharply rising from 1.5% in Q1. The vacancy rate for medium to large stores also rapidly increased to 9.9% in Q3 from 2.9% in the same period last year.

Other key commercial districts in Seoul, such as Sinchon and Gangnam, showed similar trends. The vacancy rate for small-scale stores sharply increased from Q1 this year in Sinchon (0% → 10.3%) and Chungmuro (2.1% → 10.9%). The vacancy rate for medium to large stores also rose significantly over the past year in Gangnam-daero (3.7% → 16.4%) and Apgujeong (9.7% → 13.1%).

On the afternoon of the 10th, a banner providing rental inquiries was hung on a commercial building in Jongno, Seoul. [Photo by Ryu Taemin]

Direct Hit from Strengthened Social Distancing

Experts analyze that the economic downturn in self-employment caused by strict social distancing and the expansion of non-face-to-face consumption are having a greater impact on core large commercial districts. While stores located in residential areas can somewhat maintain sales through food delivery services, core commercial districts have been directly hit by reduced office gatherings and fewer foreign tourists.

Sun Jong-pil, CEO of Commercial News Radar, explained, "Unlike lifestyle-oriented commercial districts where non-face-to-face delivery services are active, core commercial districts whose main customers are foreign tourists or office workers gathering for dinners inevitably suffer greater damage from gathering bans." He added, "Corporate franchise stores located in core commercial districts tend to quickly decide to withdraw when sales are sluggish, causing vacancy rates to rise rapidly. If landlords cannot collect rent, their burden for bank loan interest will also increase."

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