Floating Funds Without Destination Head Toward Income-Generating Real Estate

Office Yields Surpass Pre-COVID Levels in Q4 Last Year
Clear Recovery in Commercial Market... Last Year's Transaction Volume Nears All-Time High

The transaction volume and investment returns of income-generating real estate such as offices and commercial buildings are both increasing, showing signs of market recovery. Amid a reversal in housing prices due to stringent regulations, liquidity with no clear destination is flowing into the income-generating real estate market, driven by expectations of economic recovery following the With Corona policy.

According to the Korea Real Estate Board's Commercial Real Estate Leasing Trend Survey on the 4th, the investment returns for offices and commercial buildings in the fourth quarter of last year rose compared to the same period in 2020. As COVID-19 spread nationwide from 2020, the commercial and office real estate market contracted, and the quarterly office investment returns that year remained at the low 1% range (1.32%?1.64%). However, in the fourth quarter of last year, the return reached 2.11%, surpassing the pre-COVID-19 level of 2.10%.

The commercial building market is also warming up, with the recovery of medium-to-large commercial buildings standing out. The investment return for medium-to-large commercial buildings was only about 1.38% in the fourth quarter of 2020 but rose by 0.45 percentage points to 1.83% in the fourth quarter of last year. During the same period, small-scale commercial buildings increased from 1.21% to 1.56%, and collective commercial buildings from 1.44% to 1.66%, showing clear recovery trends.

As investment returns rise, transactions are becoming more active. According to the Korea Real Estate Board's transaction status, from January to November last year, the total number of commercial and office real estate transactions was 346,267, about a 3.2% increase compared to 335,556 transactions in 2020. The market expects that including December transactions, the total will approach the record high of 384,182 transactions in 2017. In Seoul, from January to September last year, the total transaction amount for commercial and office real estate was KRW 35.755 trillion, with 14,053 transactions, marking the largest scale for the January to September period since statistics began in 2006.

Unlike apartments, income-generating real estate such as commercial buildings has no resale restrictions and is not counted toward the number of houses owned. Additionally, it is exempt from heavy taxation on multi-homeowners, such as capital gains tax and acquisition tax. Furthermore, the recent announcement by the Ministry of Land, Infrastructure and Transport to curb false and exaggerated advertising in income-generating real estate to protect consumers, along with improvements in the sales system, is expected to positively influence investment sentiment.

There are also concerns that regional polarization will intensify in the income-generating real estate market going forward. Areas with solid jobs and residential demand in the background will attract buyers, while less competitive areas will lag. For example, the vacancy rate of medium-to-large commercial buildings in Bundang station area, which has prospered due to the concentration of IT-related companies, was 6.8% in the fourth quarter of last year, whereas Myeongdong commercial district, reliant on foreign tourists, recorded the highest vacancy rate nationwide at 50.1%.

A representative from the real estate research firm Real Today said, "This year, the income-generating real estate market is expected to see rising investment returns mainly in well-located areas as phased daily recovery progresses. Especially, income-generating real estate with abundant underlying demand, such as residential commercial districts, station areas, and business districts, is promising."

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