Impact of Interest Rate Hikes... Commercial Real Estate Rents to Rise Further in the Second Half

Companies Leaving Gangnam ‘Reluctantly’

The Revival of Offline Retail

[Asia Economy Reporter Kim Min-young] There is a forecast that commercial real estate rents will rise further in the second half of this year due to the impact of interest rate hikes. Landlords may increase rents to offset the burden of financial costs. With the saturation of Gangnam offices combined with rising rents, Yeouido and Seoul’s outskirts are expected to benefit.

Commercial real estate data specialist RSquare selected the following keywords for the commercial real estate market in the second half of the year on the 29th: △Full-scale impact of global interest rate hikes △Companies leaving Gangnam, reflected benefits for Yeouido and downtown △Reviving retail △Proptech facing harsh winds, fortunes depending on performance △Interior and logistics centers facing crisis due to soaring raw material prices.

RSquare expects interest rate hikes to stimulate commercial real estate rents. Inflation and increased loan interest are passed on to tenants, which could lead to rent increases. According to the Korea Real Estate Board, in the first quarter of this year, office rents (above the 3rd floor) in major Seoul business districts?downtown, Gangnam, and Mapo?rose by 1.1%, 0.4%, and 2.0% respectively compared to a year ago. Changes in the sales market are also expected, as buyers face increased loan interest burdens when purchasing buildings.

As rents rise and Gangnam offices become saturated, more companies are moving to downtown and Yeouido, which is expected to benefit these areas as well as Seoul’s outskirts. According to the Real Estate Board, as of the first quarter of this year, vacancy rates for large offices in Seoul’s downtown, Gangnam, and Yeouido-Mapo areas were 9.4%, 6.4%, and 5.3% respectively. Considering that the natural vacancy rate during company relocations is about 5%, it is difficult to find vacancies in major business districts.

The retail market, which suffered due to the prolonged COVID-19 pandemic, is showing clear signs of recovery. This is also confirmed by vacancy rates in major commercial areas. According to the Real Estate Board, the vacancy rate for medium to large stores in Gwanghwamun in the first quarter of this year was 18.1%, down 5 percentage points from a year earlier. Dosan-daero in Gangnam-gu saw a vacancy rate of 5.7%, down 8.5 percentage points. Vacancy rates in Apgujeong, Cheongdam, and Teheran-ro also fell by about 5 to 9 percentage points compared to the same period last year.

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