CBRE "Commercial Real Estate Investment Cautious... Increase in Long-Term Holding"

Office buildings in the Yeouido area, Yeongdeungpo-gu, Seoul

[Asia Economy Reporter Ryu Taemin] This year, the Seoul commercial real estate market is expected to see a decrease in transaction volume and an increase in yields. However, there are also forecasts that the market will recover in the second half of the year.

According to the '2023 Domestic Real Estate Market Outlook Report' released on the 12th by CBRE, a global comprehensive real estate services firm, the Seoul commercial real estate market this year is expected to experience a decline in transaction volume and a rise in yields due to the risk of borrowing cost procurement. However, in the second half of the year, the market is expected to shift to a recovery trend as the inflation peak is reached and the interest rate hike trend eases.

Im Dongsu, CEO of CBRE Korea, stated, "Last year, domestic asset managers held blind funds, so liquidity risk was observed to be limited. On the other hand, this year, investment activities are expected to decrease due to market contraction caused by the depletion of dry powder (unspent funds) and pressure from high interest rates."

He added, "Meanwhile, as the price expectation imbalance between sellers and buyers increases, more investors are choosing long-term holding strategies, so investment activities are expected to remain cautious for the time being."

CBRE forecasted that the average yield of prime assets in the Seoul Grade A office market will be in the low to mid-4% range, sustained by continued supply-demand imbalance supporting rental income. In the metropolitan area Grade A logistics center market, prime-grade quality assets are still expected to trade in the low 5% range.

However, polarization among asset types is expected to deepen. Due to risks from inflation and increased development costs, assets scheduled for completion this year may be offered at discounted prices or sold through foreclosure due to refinancing failures, resulting in higher yields.

The investment market is expected to see an increase in overall transaction volume as office deals such as Concordian Building, Donghwa Building, Namsan Square, and Hyundai Capital headquarters in the Yeouido area are scheduled to be completed in the first half of the year.

From 2025 onwards, most supply is expected to be concentrated in the downtown area around Euljiro, Sewoon, and Seosomun. In the Gangnam area, mid- to long-term supply easing is anticipated due to large-scale complex asset redevelopment projects in planning stages, such as the Lotte Chilsung and Jeongbosa sites. Conversely, the Yeouido area is expected to experience a prolonged shortage of vacancies.

Regarding the retail market, CBRE explained that with an overall consumption contraction expected this year, differentiation strategies for retailers have become even more important. Offline store strategies focus on selection and concentration. Representative examples include large flagship stores, increasing the number of stores and sector diversification to expand customer touchpoints, pop-up store marketing, collaborations, and brand renewals.

The logistics market is expected to see the largest supply of large assets in Incheon again this year. About one-third of the total supply is expected to be concentrated in Icheon and Anseong.

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