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Briefing Seoul Office Sector Q4 2015

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Briefing Seoul Office Sector Q4 2015 Savills World Research Korea Briefing Seoul office sector Q4 2015 Image : CBD, Seoul SUMMARY Vacancies during the quarter were absorbed by demand for office expansion and upgrades but rents remained stationary. In Q4/2015, all three major office Bank of Korea (BOK) revised districts showed a net increase in projected GDP growth for 2015 “In 2015, the rental growth rate demand but total net absorption downward to 2.6% from 2.7%, while declined from the previous quarter to Moody’s upgraded Korea’s national stagnated as leasing demand only 38,500 sq m. During 2015, a total net debt rating to Aa2 from Aa3. Aa2 is area of 142,000 sq m was absorbed the highest rating Korea has ever inched up while the investment in Seoul prime office buildings. received. market volume shrank by more The face rent of Seoul prime Transaction volume executed in office buildings increased by 0.4% 2015 amounted to KRW3.85 trillion, than 20% compared with 2014.” year-on-year (YoY) while maintenance which is far smaller than the annual fees were up by 1.3% YoY, both KRW5 trillion posted over the past Savills Research recording the lowest rates of increase three years as several deals were in history. delayed to close within 2015. In Q4/2015, office building transactions with a value of KRW1.15 trillion were concluded. savills.co.kr/research 01 Briefing |Seoul office sector Q4 2015 Supply TABLE 1 In 2015, a total of three prime Montly rent and vacany rate by district, Q4/2015 office buildings were completed, all Average rent Average rent YoY rental Net absorption District (KRW per 3.3058 (KRW per 3.3058 Vacancy rate (%) located in the CBD. In addition to KT increase rate (%) (sq m) sq m GLA) sq m NLA) Gwanghwamun Building East, the headquarters of KT, both Tower 8 CBD 101,100 180,400 0.8% 6,703 15.6 and Twin City Namsan were supplied GBD 85,400 166,500 0.1% 19,210 9.0 with a combined lease area of 76,561 sq m. YBD 78,100 160,600 0.1% 12,628 15.5 Overall Seoul 91,500 172,000 0.4% 38,542* 13.4 Average A total of approximately 228,836 sq Source: Savills Korea m of new supply is scheduled for *Net absorption of Seoul prime office buildings. 2016, equivalent to 2.7% of the prime office stock as of December 2015. TABLE 2 Approximately 40% of 2016 new Prime office new supply in 2015 supply (about 135,000 sq m) will be available for lease at a volume similar District Building name Completion GFA (sq m) Floors Remarks to new supply in 2015. In Q4/2016, KT Gwanghwamun CBD Q1/2015 51,171 B6/F-25/F Owner-occupied Lotte World Tower will be launched in Building East Jamsil on the outskirts of GBD. CBD Tower 8 Q1/2015 51,654 B7/F-24/F 32,597 Mixed-use building featuring office (B7/F-18/F), Demand and vacancy CBD Twin City Namsan Q2/2015 B7/F-30/F rate (Office) officetel (studio apartment) and hotel Total 135,422 Bank of Korea revised down its GDP growth projection for 2015 Source: Savills Korea to 2.6% from 2.7% and forecasts TABLE 3 GDP growth for 2016 of 3.0%. Moody's raised Korea's sovereign New supply planned for 2016 credit rating by one notch from Aa3 District Building name Completion GFA (sq m) Floors Remarks to Aa2, which is the highest rating Approximately 66% to be used by CBD Janggyo 4 Q1/2016 30,833 B7/F-22/F Korea has ever received. For the Shinhan Life Insurance first time in almost 10 years, the US Federal Open Market Committee CBD Myeongdong 3 Q2/2016 48,182 B7/F-27/F 100% to be used by IBK (FOMC) decided in December 2015 GBD Parnas Tower Q3/2016 104,374 B8/F-32/F Lease marketing underway for all floors to raise its benchmark interest rate 55% to be used by Daishin Securities by 0.25%, while Bank of Korea has CBD Myeongdong 4 Q4/2016 45,447 B7/F-25/F WeWork will use the other areas maintained its benchmark interest rate at 1.50% for more than six Total 228,836 155,914 14/F-38/F - prime offices months. The number of employees Jamsil Lotte Super Tower Q4/2016 B6/F-123/F (Office GFA) 108/F-114/F - private offices in Korea’s financial and insurance sectors has shown a steady increase Source: Savills Korea since July 2015, reaching 793,000 as GRAPH 1 of December. Growth rate of real GDP and real exports, 2006 - 2016 (E) The Seoul office market posted Economic Growth (GDP, annual variance in %) Export Growth (annual variance in %) 18% net absorption of 142,000 sq m in 17.1% 2015, falling short of the total area of 16% 194,000 sq m absorbed in 2014. In 14% Q4/2015, a net absorbed space of 12.4% 13.5% 13.4% 6,700 sq m was increased for CBD, 12% 19,200 sq m for GBD and 12,600 10% sq m for YBD. Net absorption in each major district recorded a QoQ 8% 6.0% 6.5% increase in Q4/2015, while the net 6% 5.2% 5.5% 4.5% absorption rate decreased to 38,500 4.4% 4% 3.3% 2.6% 3.0% sq m from 78,790 sq m. 3.7% 2% 2.8% 2.9% 2.3% 0.7% 2.3% 2.2% 0.1% Major demand in Q4/2015 was 0% 0.4% primarily driven by relocation, mainly 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015E 2016F upgrade demand from secondary to Source: Bank of Korea savills.co.kr/research 02 Briefing |Seoul office sector Q4 2015 prime offices, which accounted for GRAPH 2 36% of relocation activities. In prime- The number of employees in the financial and insurance sectors, to-prime office building relocations, Dec. 2006 – Dec. 2015 approximately 30% came as a result of conglomerates’ consolidation Financial Institutions & Insurance Employment (LHS) Total Employment (RHS) and integration according to their Unit : Number Employed (thousands) 1,200 27,000 business strategies. Office expansion represented 20% and newly created 1,100 25,000 demand 14%. 1,000 23,000 As of the end of December 2015, the overall Seoul prime office market 900 21,000 vacancy rate stood at 13.4%, down by 0.6 ppts from the previous quarter 800 19,000 as vacancy rates declined in all major office districts. Compared with Q2, 700 17,000 which recorded the highest level of the year, the vacancy rate dropped 600 15,000 by approximately 2 ppts (15.3% in Dec-06 Dec-07 Dec-08 Dec-09 Dec-10 Dec-11 Dec-12 Dec-13 Dec-14 Dec-15 Q2/2015 to 13.4% in Q4/2015). Source: Korean Statistical Information Service In CBD, the vacancy rate stood GRAPH 3 at 15.6%, similar to the previous Net absorption, Q1/2008 – Q4/2015 quarter. Despite government- Unit: sq m CBD GBD YBD related institutions moving to other 350,000 provinces, firm demand as a result 300,000 of several expansions for reasons of 250,000 business strategy or work efficiency 200,000 resolved vacant space. 150,000 100,000 GBD recorded the lowest vacancy rate among the major districts at 50,000 9.0%, down by 1.0 ppts QoQ. This 0 was supported by conglomerates’ -50,000 relocation, upgrade and expansion -100,000 demand. -150,000 -200,000 The vacancy rate of YBD fell by 1ppt Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 from the previous quarter to 15.5%. 2008 2009 2010 2011 2012 2013 2014 2015 Source: Savills Korea Outlook As Samsung plans its affiliates’ GRAPH 4 relocation according to a new Seoul prime office vacancy rate, Q1/2002 – Q4/2015 business strategy, notable CBD GBD YBD movements are expected in Q1/2016 30% in CBD and GBD. 25% By district, the vacancy rate in CBD is forecast to increase by up to 16% 20% as new supply will come on stream. Hana Tour, which is temporarily 15% leasing in Pine Avenue B, will move back to its headquarters in 10% Gongpyeong-dong as remodelling work for a duty free shop will 5% complete. Going forward, Societe General will move from S Tower to D 0% Tower and several TFTs and financial Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 companies are considering relocating 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 for better quality space. In Q1/2016, Source: Savills Korea savills.co.kr/research 03 Briefing |Seoul office sector Q4 2015 Janggyo district no. 4 will complete WeWork, a provider of co-working will move to Alpharium at Alpha Dom with 30,833 sq m of GFA, and 66% of office space. City in Pangyo. Samsung affiliated the office space will be occupied by In GBD, the vacancy rate is expected companies Samsung Fire & Marine, Shinhan Life Insurance. Myeongdong to drop to the mid-8% level.
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