Maston Asset Management "Commercial Real Estate Transaction Volume 34 Trillion This Year... Significant Decline Expected Next Year"

Publication of Commercial Real Estate Market Review and Next Year's Outlook Report
Year-end Capitalization Rates Ranked Retail, Hotel, Logistics, Office

[Asia Economy Reporter Minji Lee] Maston Investment Management has published a review and outlook report on the commercial real estate market.

According to the report titled "2021 Real Estate Market Review and 2022 Outlook ? Focusing on the Commercial Real Estate Market," released on the 9th by Maston Investment Management's research division, R&S (Research & Strategy) Office, despite the impact of COVID-19, the transaction volume of commercial real estate this year is expected to exceed 34 trillion KRW. This is the largest scale ever recorded, with sector proportions as follows: Office 53.7%, Retail 20.7%, Logistics 18.2%, and Hotel 7.3%.

However, considering the recent decline in commercial real estate transaction volume, it is expected that next year’s transaction volume will significantly decrease. The projected transaction volume for next year is between 19.6 trillion and 27.7 trillion KRW.

Next year, due to the impact of rising interest rates, the cap rate (Capitalization Rate) for assets other than logistics is expected to rise slightly compared to the current level. As of the second quarter of this year, the cap rates rank in the order of Retail, Logistics, Hotel, and Office, with the logistics sector experiencing a relatively large decline. By the end of next year, the cap rates are forecasted to rank Retail, Hotel, Logistics, and Office.

Specifically, in the office market, as new office supply decreases in the future, vacancy rates are expected to decline, and the market is likely to be reorganized from a "tenant-favorable" to a "landlord-favorable" environment. Considering the reduction in rent-free periods and relatively high inflation rates, the upward trend in real rents is likely to expand. The R&S Office explained, "Institutions have a strong willingness to hold prime offices long-term, and large-scale properties are generally limited."

In the logistics market, the increase in transaction prices exceeded the rent growth rate, resulting in a relatively large decline in cap rates compared to other assets. The report predicts that the supply of new logistics centers next year will increase by more than 60% compared to the previous year. The report analyzed, "Additionally, since vacancy rates and interest rates are likely to rise, it is necessary to strengthen monitoring of the logistics sector."

In the retail market, retail sales are showing signs of recovery despite the impact of COVID-19. From the supply side, experiential complex facilities such as outlets and shopping malls are scheduled to open. Over the past five years, the cap rate in the retail sector has remained stable at an average of just over 5%, but it is expected to rise slightly in the future due to factors such as interest rate increases.

The hotel sector, which was hit hardest by COVID-19, is analyzed to require a considerable period for recovery. It is expected that recovery will begin primarily with luxury hotels. Similar to retail, there are cases where hotels are traded for development purposes of other uses, but since sellers’ asking prices are high, careful review from a profitability perspective is required.

Famoushan Sil, head of Maston Investment Management’s R&S Office, stated, "In the case of offices, there is a need to increase interest in small and medium-sized properties. Also, for retail and hotels, which are struggling, a thorough review of potential development possibilities should be included in the investment evaluation process."

Meanwhile, Maston Investment Management’s R&S Office was newly established in May last year as a department directly under the CEO. At the time of establishment, it was called the "Research Analysis Office," and in January this year, it was expanded and reorganized into the R&S Office, consisting of the Global Research Team and the Strategy Research Team.

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