Share: Share on Facebook Share on Twitter Share on LinkedIn I recommend visiting cushmanwakefield.com to read:%0A%0A {0} %0A%0A {1} Share on Naver

Sorim Jie: South Korea’s commercial real estate investment market continues to thrive

Sorim Jie • 14/02/2022

South Korea’s commercial real estate investment market has been on fire since 2017, and investment volume continued to ramp up in 2020 and 2021 despite the pandemic. What are the demand drivers? Will an expected interest rate increase in 2022 dampen investor demand?

APAC Capital Market Hub - Seoul

Korea’s real estate market has been in spotlight since 2017 with surging volumes of transactions and ample liquidity, backed by lower lending costs, which has seen the cap rates shift downward.

In 2022, as economic recovery is expected with healthy levels of inflation, the base interest rate will gradually escalate back to pre-COVID 19 levels, which might halt the cap rate compression. However, this does not necessarily mean pricing levels will trend downwards because of viable rental activities and continued capital flow into the real estate market.

Office market transaction volumes peaked in 2020 at nearly KRW 14 trillion (US$11.6 billion). It fell back to KRW 10 trillion (US$8.3 billion) in 2021, given the increasing interest rate environment, which delayed some of the ‘mega’ deals. The investment market is expected to remain strong driven by a strong demand side equation. The market has rebalanced to a landlord market with the strong rental growth, decreasing vacancy rate, limited supply, and particularly strong take up from IT-based startups and coworking spaces.

The investment appetite for logistic centers will continue to grow in 2022 due to the increasing volume of delivery and continued growth of e-commerce. The main logistics areas, such as Yongin and Incheon are now saturated, so the new developments have been expanded further to Cheonan and east to Yeoju. The cap rate of logistics assets has compressed as low as sub 4% for core assets with credit tenants. However, investment decisions will require a deeper investigation and discretion from 2022 to find a competitive asset with good location, size, physical specifications, and service amenity due.

A key game changer in the logistic market was the IPO of REITs holding logistic assets, which will be another capital source in the future. The largest one in Korea now is ESR Kendall square, with 11 assets of totaling KRW 1.4 trillion (US$1.2 billion) in value, and we see this growth only continuing in the listed sector.

As office and logistic markets continue to be competitive, alternative asset classes like data centers, residential, and life science have recently been keenly sought after by domestic and overseas investors. The market for multifamily and life science is not yet mature enough for institutional investment, but data centers market is emerging as several new developments by institutional investors have been started and expect to complete from 2Q of 2023.

These opinions are the author’s own and do not necessarily reflect the views of Cushman & Wakefield. To find out more about how Sorim Jie views opportunities in South Korea, click her profile and get in touch.

For more on investment opportunities across Asia Pacific, visit our Real Estate Investment Hub here.

 

Related insights

APAC Capital Markets Overview
Insights • Investment

Asia Pacific Capital Markets Overview - Spotlight on India

As Asia Pacific begins to show signs of recovery from COVID-19, led by a rebound originating from China, what is the current status of the commercial real estate market and where is it headed?
Anna Town • 03/03/2021
What’s Next for the China CRE Investment Market
Insights • Investment

What’s next for China’s CRE Investment Market Spotlight on Shenzhen : 2020 Review & 2021 Outlook

As China emerges from the COVID-19 outbreak ahead of other major global economies, what’s the current status of the country’s commercial real estate (CRE) market and where is it headed?
James Shepherd • 20/01/2021
apac-capital-flows-webinar-spotlight-on-seoul
Insights • Investment

Q2 Asia Pacific Capital Markets Webinar - Spotlight on Seoul

As Asia Pacific begins to show signs of recovery from COVID-19, led by a rebound originating from China in Q2, what is the current status of the commercial real estate market and where is it headed?

James Shepherd • 22/07/2020
With your permission we and our partners would like to use cookies in order to access and record information and process personal data, such as unique identifiers and standard information sent by a device to ensure our website performs as expected, to develop and improve our products, and for advertising and insight purposes.

Alternatively click on More Options and select your preferences before providing or refusing consent. Some processing of your personal data may not require your consent, but you have a right to object to such processing.

You can change your preferences at any time by returning to this site or clicking on Privacy & Cookies.
MORE OPTIONS
AGREE AND CLOSE
These cookies ensure that our website performs as expected,for example website traffic load is balanced across our servers to prevent our website from crashing during particularly high usage.
These cookies allow our website to remember choices you make (such as your user name, language or the region you are in) and provide enhanced features. These cookies do not gather any information about you that could be used for advertising or remember where you have been on the internet.
These cookies allow us to work with our marketing partners to understand which ads or links you have clicked on before arriving on our website or to help us make our advertising more relevant to you.
Agree All
Reject All
SAVE SETTINGS