"Used to be popular"... 1st Quarter Officetel Sales Performance Hits Lowest in 10 Years

A view of an officetel in downtown Seoul.
Photo by Yonhap News

Both officetel pre-sale performance and transaction price fluctuation rates in the first quarter of this year shrank to the lowest levels in the past 10 years.

According to Real Estate R114 on the 17th, the number of officetel units for sale in the first quarter of this year was recorded at 1,464 units. This represents an 80% decrease compared to the same period last year (7,282 units) and is about one-tenth of the average first-quarter pre-sale performance of 12,723 units over the past 10 years.

During the recent housing price surge, officetels were spotlighted as alternatives to apartments due to the combination of strong real estate regulations and supply shortages. However, last year's sharp interest rate hikes and the application of the Debt Service Ratio (DSR) on officetels significantly dampened investment demand. Furthermore, as regulations were substantially eased mainly for apartments, the value of officetels as investment products and residential alternatives relatively declined, leading to a sharp drop in pre-sale performance.

Transaction prices also fell sharply. The transaction price increased by 0.67% in the first quarter of 2021, reaching a peak, then continued to decline and turned negative in the fourth quarter of 2022. The transaction price fluctuation rate of officetels in the first quarter of 2023 recorded -0.27%, marking the largest decline in 10 years.

The rental yield of officetels in the first quarter of this year was 4.56%. It has rebounded since the third quarter of 2021 (4.44%) and is maintaining a slight upward trend. While there is a preference for monthly rent, the relative increase in yield is largely due to the decline in transaction prices, which are the investment amounts used in yield calculations. However, rental yields vary greatly depending on the region, and considering increased interest costs due to high interest rates, the perceived yield may differ somewhat.

Real Estate R114 expects that the sharp drop in pre-sale performance in the first quarter of this year and the decreasing supply of move-in units since 2019 will reduce concerns about oversupply in the mid to long term, acting as a positive factor for officetel investment. Additionally, with transaction prices adjusting downward and the DSR calculation method being revised on the 24th, loan limits will increase, making it easier for investors to secure funding.

However, since income-generating real estate ultimately aims for rental income, considering the current loan interest rates of 4-5%, rental yields must exceed this level to have investment value for rental purposes. Saerom Baek, a senior researcher at the Research Team, said, “Due to the high interest rate environment making stable yield guarantees difficult, selective investment approaches are necessary depending on scale, such as office-dense areas with abundant underlying demand, locations near stations with high liquidity and foot traffic, and small-sized units.”

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