This Year’s Commercial Real Estate: MZ Generation Shopping Districts Rise... More Urban Logistics Centers Increase

RSquare Selects 'Top 5 Keywords for Commercial Real Estate in 2022'

Urban Areas Becoming Logistics Hubs... Dark Store Openings to Continue

[Asia Economy Reporter Kim Min-young] This year, the commercial real estate market is expected to see the rise of distinctive offline commercial districts and the infiltration of logistics centers into every corner of urban areas. The development of niche products related to IT companies, such as knowledge industry centers and data centers, which have recently seen increased demand from investors, is also expected to be active.

On the 9th, real estate data company RSquare selected the top five keywords for commercial real estate this year as ▲the rise of distinctive offline retail ▲evolution of urban logistics centers ▲market upheaval due to interest rate hikes ▲highlighting niche products such as knowledge industry centers and data centers ▲and ESG-driven trends in commercial interior design.

▲Rise of Distinctive Offline Commercial Districts

Amid the prolonged COVID-19 pandemic, the fate of Seoul’s commercial districts has diverged, and this year, districts attracting the interest of younger generations are expected to survive. Representative areas include Seoul’s Seongsu, Hannam, Sinsa, and Apgujeong neighborhoods, where food and beverage and clothing brands favored by the MZ generation have gathered.

The vacancy rate in Myeongdong, a commercial district centered on foreign tourists, soared to 43.3% (small-scale basis) in the third quarter of last year. The vacancy rate in Hongdae and Hapjeong, which are considered to have lagged behind changes, also rose to 24.7%. In contrast, vacancy rates in districts formed mainly by the MZ generation, such as Sinsa (7.7%), Cheongdam (0%), and Ttukseom (0%), were relatively low.

This polarization of commercial districts is expected to deepen this year. An RSquare official said, “The MZ generation pursues memorable or unique forms of consumption,” adding, “The fate of commercial districts with high-end food and beverage and trend-leading brands and those without will clearly diverge this year.”

▲Evolution of Urban Logistics Meeting Dark Stores

Due to the delivery time reduction competition among e-commerce companies such as Coupang, Market Kurly, and Baedal Minjok, urban logistics centers in the form of dark stores are expected to become common. Industry insiders say such facilities were rare in the market just a few years ago.

According to RSquare’s full survey, as of the end of last year, about 470 logistics warehouses were counted in Seoul alone. Most are urban warehouses used by same-day delivery companies. In particular, the number of companies seeking dark stores is increasing. This is analyzed as a result of a significant increase in e-commerce customers and the growth of delivery service markets such as Baedal Minjok’s B Mart and Coupang Eats, leading companies to establish logistics hubs closer to consumers.

Dark stores, meaning “dark shops,” are stores that do not allow consumers to visit and purchase products directly but only handle product sorting, packaging, and delivery. Recently, Lotte Mart, GS25, and Homeplus have also converted offline stores into dark stores, accelerating the phenomenon of urban areas themselves becoming logistics hubs.

▲Polarization of Commercial Real Estate Market Accelerated by Interest Rate Hikes

With rising interest rates, both crisis and opportunity coexist in the commercial real estate market. The Bank of Korea (BOK) recently stated, “The 2022 base interest rate will be appropriately adjusted according to economic conditions.”

During periods of interest rate hikes, companies’ interest burdens increase, which is negative for the sales market. Last year, the total transaction amount for offices over 10 billion KRW in Seoul, Pangyo, and Bundang reached a record high of 17.256 trillion KRW, but this trend is likely to slow this year.

On the other hand, due to housing market regulations and a preference for safe assets, investment demand remains abundant, and real estate with excellent location conditions is expected to stand out depending on location, development prospects, and yield.

The lease market is expected to polarize. As rents rise with interest rate increases, the distinction between prime locations like Gangnam and Pangyo, where recruiting excellent talent is easy, and other areas will become clearer.

Jin Won-chang, head of RSquare Big Data, predicted, “Due to the rise in base interest rates and high market prices, expected yields have decreased, so investments that can increase value through changes in building use after purchase will increase.”

▲Knowledge Industry and Data Centers Become Mainstream in Commercial Real Estate Market

As the housing market cools, the development of niche products such as knowledge industry centers and data centers is expected to increase. Knowledge industry centers remain attractive to investors because they are not subject to loan regulations and have no restrictions on resale of pre-sale rights. There is also a view that factory-type knowledge industry centers, where manufacturing plants are established instead of office-type spaces for small and medium enterprises, are promising.

Data centers are considered high-growth items as the industry reorganizes around IT and mobile. An RSquare official said, “Data centers need to be close to customers’ engineers, have sufficient power and network supply, and be near urban areas,” adding, “This means that excellent location conditions can lead to increased investment value in the future.”

According to the Korea Data Center Association, the data center market size exceeded 3 trillion KRW last year and is expected to grow at an average annual rate of over 10% for the next five years.

▲ESG (Environmental, Social, Governance) Trend Sweeps Commercial Facility Interior Market

As companies strengthen ESG management, the ESG trend is expected to spread to the commercial real estate interior and remodeling market. Accordingly, office environments will be reorganized from large-scale dense occupancy to structures where members can enjoy comfort like at home, and interiors and exteriors using eco-friendly and recycled materials such as plants and soil are expected to become popular.

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