Yeouido Offices Outperform... Vacancy Rate at 2.7% [Real Estate AtoZ]

Vacancy Rate at Record Low of 2.7% in Seoul
'1,200% Floor Area Ratio' Incentives Drive Market
Redevelopment Boom Sweeps Yeouido Office Sector
Virtuous Cycle of Redevelopment and Value Appreciation
Transaction Prices Soar... Deals Reach

Recently, the Seoul office market has been facing overall supply pressures, such as rising vacancy rates and a slowdown in the growth of real rental rates. However, amid these trends, only the Yeouido (YBD) district is experiencing an exceptional boom, maintaining a heated transaction atmosphere. As a wave of integrated redevelopment through reconstruction sweeps the area, the former financial hub is emerging as a core region that is creating new value.

'Yeouido' Alone Thriving in the Seoul Office Market

Yeouido continues to maintain a differentiated vacancy rate and upward trend in Seoul offices. The photo shows TP Tower, one of the new landmarks. Teacher's Pension.

According to Samsung Securities on September 6, the vacancy rate in the Seoul office market continued to rise in the second quarter. However, the Yeouido district recorded a low vacancy rate of 2.7%, standing out from other areas. The average vacancy rate across Seoul was 4.0%. Moreover, excluding newly built offices, the vacancy rate in Yeouido dropped to 1.3%, representing the tightest supply and demand situation among Seoul’s major office districts. In terms of the actual net operating cash flow (NOC) growth rate, which takes nominal rent into account, Yeouido also led with a 1.7% increase, the highest among all districts.

There are several reasons for Yeouido’s outstanding performance. First, it has the smallest absolute area among Seoul’s major office districts, and there is limited capacity for new development. In addition, traditional financial sector companies still prefer Yeouido, resulting in robust leasing demand. Lastly, as the profitability of reconstruction projects has increased, a redevelopment boom is underway.

'Floor Area Ratio Incentives' Ignite the Reconstruction Boom

The decisive factor that revitalized the Yeouido office market was the 'Yeouido Financial District Unit Plan.' In May 2023, the Seoul Metropolitan Government decided to provide floor area ratio (FAR) incentives through this plan. While the basic FAR for general commercial areas is 800%, it can be increased to 1,000% if the area is reclassified as a central commercial district. Furthermore, if eco-friendly and innovative designs are applied, an additional FAR of up to 1,200% can be granted. This has dramatically improved the business feasibility of office reconstruction projects.

In reality, many aging buildings in Yeouido have a FAR of only 500% to 800%. These buildings have the potential to significantly expand their gross floor area through reconstruction. TP Tower, which was rebuilt from the Teacher’s Pension building, has more than tripled its gross floor area and is cited as a successful example.

This enthusiasm for reconstruction is also having a direct impact on the office transaction market. The recently sold Hyundai Motor Securities building was recognized for its reconstruction potential and traded at 29 million won per pyeong, the highest level in Yeouido. Currently, buildings such as the Meritz Fire & Marine Insurance headquarters and Kiwoom Finance Square have begun reconstruction procedures, while Mirae Asset Securities Tower and KB Kookmin Bank’s Yeouido headquarters are also planning reconstruction.

Lee Kyungja, a researcher at Samsung Securities, said, "As old offices are demolished for reconstruction, supply decreases, and when new offices are completed, overall rents rise, creating a virtuous cycle of reconstruction and value appreciation that is heating up the Yeouido office market." She added, "This stands in contrast to the central business district (CBD), where there are concerns about oversupply, and Yeouido is expected to continue to show a differentiated leasing and transaction market."