11 Key Korean Real Estate Market Questions Answered
Are there any pricing concerns on core product in Seoul? It seems that recent transactions’ relative returns are becoming less attractive than other core gateway cities in Asia and in other regions.
Some investors do have concerns about the price, yes. However, liquidity comes not only from traditional real estate investors but also from other financial investors who see opportunities here as the lending rate drops and the stock market remains in a downturn. Other core gateway cities have lower cap rates so there is still room for opportunity in Seoul.
In recent years it seems that buyers in the Seoul office market have been mainly domestic. Why haven’t foreign players been able to crack the market?
Predominantly because foreign players have higher return expectation than domestic investors. In addition, domestic capital flows to real estate have been increasing due to weaker performance in the stock and bond markets.
Could you speak more to the fundamentals driving the Seoul logistics and e-commerce property market sector and the near-term outlook, and also briefly give your view on the data centre market?
Logistics properties are going to flourish further due to growing demand for online shopping. Today in Korea consumers are trending towards ordering online for every product category, from daily groceries to luxury goods. Regarding data centres, with data traffic increasing significantly both due to existing trends and the COVID-19 outbreak, we expect the data centre market to continue to offer significant opportunity to investors.
For leasing in Seoul, which market is projected to deliver better office leasing performance, and which industries are still leasing space?
Grade A office properties in GBD and CBD are filling up quite quickly with tenants from industries such as IT, gaming, fin-tech and bio-tech.
Are there any markets that are attractive alternatives to Seoul for office or industrial?
Potential alternatives are Sejong and Busan. But office demand and market volumes are much smaller than Seoul. The logistics sector can be sustainable considering populations and proximity to other satellite cities.
How is the co-working sector performing in Seoul?
Co-working operators tend to keep their occupancy confidential. However, we are seeing some businesses performing well as a result of the COVID-19 pandemic, with companies in need of a larger spaces for a short period of time. Fast Five, a Korean operator who surpassed WeWork's performance in Korea, is operating with some significant success.
Do you forecast dramatic changes in work styles, linked to shrinking rental demand for office space regardless of country due to the lockdowns implemented worldwide?
The pandemic experience has opened people’s eyes to the possibilities that technology offers in empowering new working styles. We expect that the extent of the impact on demand will be different in each market and will be influenced by the length of the lockdown that the market has experienced, the typical tenant profile in the market, local business culture, and the extent to which businesses wish to future-proof their premises to allow for social distancing in the event of another pandemic.
In Asia we often live in very high-density residential environments and these are not always conducive to working from home, especially for young people who may share accommodation. In general, we believe that over the midterm the reduction in the required office capacity as a result of remote working will be offset by de-densification in the workplace.
What is the rental outlook over the next three years for logistics warehouse assets in Korea SMA?
As both demand for and supply of logistics are growing, there won't be too much of an increase in rental rates. But those newly built logistic centres with high quality facilities will enjoy some rental increase over the next two-three years.
Does the work-from-home trend affect the Korean office sector, and if so, how?
As a matter of fact, since May not many people have been working from home in Korea. Therefore at least for now we see limited impact from the work-from-home trend.
Regarding Korea logistics opportunities, what’s the view on attractive submarkets? How do you think supply chains disruption is going to impact location preferences?
Submarkets are being developed as of now, so it won't be clear until they are in full operation, but overall these can be a good alternative due to increasing demand. And regarding supply chain disruption, it was not actually a trend that was present in Korea except in sanitary goods and masks at the beginning of the COVID-19 outbreak.
Aside from the well-recognized growth and benefits, are there any risks or challenges that you think investors should pay attention to in the logistic sector?
Absolutely. For high quality logistics assets the available stock is extremely tight in Asia. With such a heavy weight of capital leaning on this sector and limited opportunities it will be challenging to deploy capital here. For developers, good logistics sites are extremely hard to source, and local authorities may not be keen on such uses as these typically create few jobs, and such low-rise structures may be considered an inefficient use of land. Logistics site selection is also a real art and many facilities will underperform as a result of compromises or poor decisions on locations.