"Small but Excellent" Small Office-tel Boom...Low Entry Barriers and High Profitability

Despite the stagnation in the officetel market, the popularity of small officetels is increasing. While demand for medium to large officetels over 60㎡ (exclusive area), which have been the mainstream in the market, has decreased, demand for small officetels with lower price burdens and higher profitability remains steady. The proportion of small officetel transactions has increased in the sales market, and fierce competition is also seen in the auction market, with 125 bidders participating in some officetel auctions in the metropolitan area.

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

According to an analysis of actual transaction data from the Ministry of Land, Infrastructure and Transport on the 23rd, the total number of officetel transactions in Seoul this year until the 22nd reached 2,904. Among these, transactions for officetels 60㎡ or smaller accounted for 2,792, making up 96.1% of the total transaction volume. The transaction volume for officetels over 60㎡, known as 'Apartel (Apartment + Officetel)', was only 112 cases, accounting for 3.9% of the total.

The proportion of small officetels in Seoul officetel sales is gradually increasing. In 2021, out of a total of 20,068 sales, small officetels accounted for 18,762 cases (93.4%), but last year, out of 15,117 sales, small officetels accounted for 14,723 cases (97.3%), an increase of 3.9 percentage points. This trend appears to be continuing into this year.

Demand for small officetels is also growing in other metropolitan areas outside Seoul. In Gyeonggi Province, the proportion of small officetels in total officetel sales was 75.1% in 2021, but increased by 11.5 percentage points to 86.6% last year. This year, as of the 22nd, small officetels accounted for 2,067 out of 2,477 transactions, making up 83.4%. In Incheon, the proportion of small officetels was 63.4% in 2021, rose to 65.5% last year, and has grown to 69.0% this year.

This trend is due to the reversal of the housing market flow over the past few years. During 2020-2021, when housing prices soared, officetels over 60㎡, which had high scarcity value and were popular as apartment substitutes, accounted for a high proportion of total transactions. However, last year, as the apartment market weakened and with consecutive interest rate hikes and DSR (Debt Service Ratio) regulations, buyers began to avoid them.

There were also differences in price and profitability by size. Generally, small officetels are relatively cheaper than medium to large officetels, making entry barriers lower and loan burdens lighter. Moreover, with the recent halt in the sharp price rise in the housing market, the possibility of capital gains is low, increasing preference for small officetels with relatively higher profitability. Experts analyze that in Seoul, where real estate prices are higher than in other metropolitan areas, the supply proportion of small officetels is high, which is reflected in the high transaction volume proportion.

The popularity of small officetels continues in the auction market as well. On the 6th of last month, at the Suwon District Court Auction Division 15, there was fierce competition with 125 bidders for a 25㎡ officetel unit in Bundang Suji Yuta Tower, Suji-gu, Yongin, Gyeonggi Province. On the 10th of last month, 43 bidders participated in the auction of a 21㎡ officetel at Hillstate Eco Songpa in Munjeong-dong, Songpa-gu, held at the Seoul Eastern District Court Auction Division 3, and 35 bidders participated in the auction of a 24㎡ officetel at Baeksang Alitz 1st Phase in Byeollae, Namyangju, showing the heated interest in small officetel auctions.

Senior Researcher Lee Joo-hyun of Gigi Auction analyzed, “Due to interest burden from interest rate hikes, demand for high-priced residential officetels is decreasing compared to apartments. On the other hand, small officetels are popular because their price range is low, loan burdens are light, and they can guarantee a certain level of profitability.”

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