Interest Rate Hike Slows Transactions of Mid-to-Large Buildings in Seoul... 'Halved in One Year'

[Asia Economy Reporter Ryu Taemin] The volume of transactions for medium to large office and commercial buildings in Seoul with a total floor area of over 1,000 pyeong (3,300㎡) has sharply declined compared to the pandemic period. This is analyzed as a result of rapidly shrinking investment sentiment due to U.S.-originated interest rate hikes and signs of economic slowdown.

According to a quarterly analysis of transaction counts for office and commercial buildings over 1,000 pyeong in Seoul from 2019 to the third quarter of this year, conducted by commercial real estate data specialist RSquare through the Korea Real Estate Board, the third quarter of this year (as of the 11th) recorded 23 transactions, a 39.5% decrease compared to the same period last year. The second quarter transactions this year were also 26, down 45.8% from the same period last year.

Transactions of office and commercial buildings over 1,000 pyeong were in the 20s during the first and second quarters of 2020. However, they surged to 35 in the third quarter and increased further to 42 in the first quarter and 48 in the second quarter of 2021. This is analyzed as the government's fiscal policies to overcome consumption stagnation caused by the pandemic leading to a boom in the asset market. However, due to inflation, base interest rate hikes, and signs of economic slowdown, the transaction volume sharply dropped to 28 in the fourth quarter of last year. This year, quarterly transaction volumes have remained in the 20s.

RSquare also forecasts that transactions of medium to large buildings may contract further. In a recent survey conducted by RSquare among its internal expert group on the "Commercial Real Estate Market Outlook Following Interest Rate Hikes," 75.0% of respondents answered that "transaction volume will decrease."

Ryu Gangmin, head of RSquare Research Center, said, "Real estate investment is decreasing due to the burden of loan interest following the Bank of Korea's consecutive base rate hikes," adding, "With further interest rate hikes anticipated, real estate investment is expected to slow down."

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