Seoul, Korea

ECONOMIC INDICATORS

In 2Q2009, Korea’s GDP fell 2.51% YoY, showing a narrower drop range than 1Q2009 with -4.32% YoY, according to the Bank of Korea (BOK). On a quarterly basis, the GDP growth rate seemed to gradually recover, by 2.33% QoQ in 2Q2009. Such a rapid recovery of Korea’s GDP growth rate made it possible to forecast a positive economic situation in the second half of 2009.

The CD rate, as a benchmark of variable interest mortgage loans, has consistently fallen since 3Q2008, reaching 2.41% in 2Q2009. However, the spread between the CD rate and the interest rates for mortgages became larger, representing the high risk premium regardless of lowered CD rate, which indicates ongoing instability in the financial market.

The foreign exchange rate (Forex), once up to KRW1,400 to the US dollar due to the US dollar deficit worldwide, fell to KRW1,294.8 to the US dollar in 2Q2009, and KRW 1,216.50 at 15th Sep, 2009, thanks to the leveraging of the current account in the black during 1H2009. The unemployment rate increased by a narrow gap, to 3.8% in 2Q2009, and is expected to slowly increase during the remainder of 2009, with only a few job postings announced. The growth rate of the Consumer Price Index (CPI) dropped continuously to 3.57% YoY in 2Q2009, compared with the relatively high rate in 2008. Still, the CPI remained at a higher level than other OECD countries.

OFFICE MARKET UPDATE

Although the Korean economy, in the Asia Pacific region, has successfully dealt with the difficult economic situation, thanks to the many reflation policies initiated by the Korean Government, the stagnant office market in Korea does not seem to restore to the prosperous state observed in previous years.

CBD has long been considered as the most influential district with the highest demand; even so, such demand fell to a certain degree in 1H2009. The increased vacancy rate of 2.71% during 1H2009 is expected to climb with new supply, namely Seoul Square, scheduled to be added to the market in November 2009. The main trend of the GBD market can be summarized as a sharp increase in vacancy rates and a stagnant increase in rents. Overall demand in the GBD fell, due to the cost-saving strategies put in place by major companies to consolidate operation branches and to restructure their companies. Otherwise, since most headquarters of finance- and insurance-related industries secured a location in YBD, the market stabilized, with a relatively insignificant movement of their office space; and this showed relatively low vacancy rates compared to GBD.

INVESTMENT MARKET UPDATE

There is no doubt that the investment in the Korea office market has been affected by the global financial crisis since 4Q2008. The capital value of Grade A office building largely fell in 4Q2008, more than 30% compared with previous quarter. This was mainly caused by a gap between sellers and buyers in transaction price, despite an increased volume of office buildings released for sale on the market. In 1H2009, the investment market started to recover slowly, owing to the positive signs of economic indicators, to the expectation of tiding over the financial crisis and to the increase of portfolio investment by Real Estate Trust, Funds and REITs. Especially, the capital value of Grade A buildings has climbed slightly in 2Q2009, as investors found price competitiveness acknowledged the market bubble easing and took an opportunity in the downturned market. Notably, local investors have driven the Seoul office sales market in 1H2009, unlike previous years’ trends, which were driven mostly by foreign investors.

Such an emerging trend in the investment market will be continued in 2H2009 and the following year. Considering that the vacancy rate is on the rise and rental rate is on a horizontal increase, as well as capital value dropping with increasing volume of office building from company restructuring and termination of Fund and REITs, the Seoul office market can be the gratifying opportunities for investors.

About Colliers International

Colliers International is a global affiliation of independently owned commercial real estate firms. The organization's 12,700 employees span the world in 294 offices in 61 countries. On a worldwide basis, Colliers manages 1.1 billion square feet, and has revenue of $US 1.6 billion.

Contact Information

Young Cho,
Manager | Consultancy&Valuation Division

Colliers International Korea
10F Korea Tourism Organization Bldg.
10 Da-dong, Jung-gu
Seoul, Korea 100-180 Tel  82 2 6740 2000
Direct 82 2 6740 2011
Mobile 82 10 6258 7701
Fax 82 2 6740 2010
Young.Cho@colliers.com 

 back to top