Seoul – Q1/2021 MARKET IN MINUTES Seoul Prime Office Savills Research Savills team Please contact us for further information SOUTH KOREA Crystal Lee CEO +82 2 2124 4163 [email protected] Kookhee Han Senior Director Investment Advisory +82 2 2124 4181 [email protected] Seunghan Lee Senior Director Office Advisory & Marketing +82 2 2124 4253 Limited new supply in 2021 [email protected] Vacancy is expected to tighten because of reduced new supply in 2021 and a RESEARCH rebound in leasing demand. JoAnn Hong Director Korea +82 2 2124 4182 [email protected] • Center Field (GFA 169,200 sq m) in GBD has enjoyed strong “Five-year treasury bond demand from tenants with pre-lease agreements and ongoing Simon Smith negotiations with occupiers from the gaming and e-commerce Senior Director yields increased 10 bps QoQ Asia Pacific fields. in Q1/2021, but effective cap +852 2842 4573 [email protected] • Average prime office headline rents rose by 2.0% YoY, with rate spreads held steady at Savills plc YBD showing the largest increase of 3.4% YoY. Savills is a leading global real estate service provider listed on 200 bps.” the London Stock Exchange. The • The quarterly office transaction volume totaled KRW3.9 company established in 1855, has a rich heritage with unrivalled trillion, up 52% YoY, marking the highest first quarter vol- SAVILLS RESEARCH growth. It is a company that leads rather than follows, and now has ume-to-date. over 600 offices and associates throughout the Americas, Europe, Asia Pacific, Africa and the Middle East. This report is for general • Investor interest in the Pangyo office market is high on the informative purposes only. It may lifting of 10-year resale restrictions. not be published, reproduced or quoted in part or in whole, nor may it be used as a basis for any contract, prospectus, agreement or other document without prior consent. Whilst every effort has been made to ensure its accuracy, Savills accepts no liability whatsoever for any direct or consequential loss arising from its use. The content is strictly copyright and reproduction of the whole or part of it in any form is prohibited without written permission from Savills Research. savills.co.kr/insight-and-opinion/ 1 Seoul Prime Office SUPPLY DEMAND AND VACANCY RATES GRAPH 1: Growth Rate of Real GDP and Real In Q1/2021, Center Field (Former In Q1/2021, Seoul prime office net Exports, 2012 to 2022(F) Yeoksam Renaissance Hotel absorption increased 39,600 sq m, largely Redevelopment) was completed, adding Economic growth (GDP, annual variance in %) from move-ins to new buildings in YBD. Export growth (annual variance in %) 169,200 sq m to GBD. Game developer In CBD, DL Group (Former Daelim 8% Krafton is expected to relocate its HQ 7.1% Group) affiliates (23,500 sq m) moved from 7% from Pangyo to Center Field’s East Tower D Tower Gwanghwamun and the Korea 6% in June. Other global IT companies have Chamber of Commerce and Industry Bldg. shown interest in the project, reportedly 5% to D Tower Donuimun, while WeWork shed having signed pre-lease agreements. five floors (10,500 sq m) in Daishin Finance 4% 3.0% Other upcoming projects for 2021 include Center. While data shows considerable 3% K-Square Citi (Former Citibank Da-dong upgrade demand and expansion, net 2% HQ, 41,700 sq m) in CBD which began aborption in CBD decreased 17,300 sq m as a 1% remodeling in Q2/2020 and is expected to be result of several major vacancies. 0% completed in Q3/2021. Total supply in 2021 In GBD, vacancy from the departure is expected to be 210,900 sq m, just 26% of -1% of CJ ENM (16,100 sq m) in Q4/2020 was new supply added in 2020. -2% backfilled in Q1/2021, reflecting consistent 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021E 2022F office demand in GBD. Meanwhile, Doosan Source Bank of Korea (Economic Outlook, February 2021) ECONOMIC OUTLOOK Heavy Industries (32,400 sq m) moved The Monetary Policy Board of the Bank from Kyobo Gangnam Tower to Bundang of Korea (BoK) decided at its April 15 policy Doosan Tower constructed last quarter, meeting to leave the Base Rate unchanged and OurHome (3,600 sq m) left Meritz GRAPH 2: Number of Employees in Finance and at 0.5% for a seventh consecutive time since Insurance Sectors, January 2012 to March 2021 Tower for its newly constructed HQ in July 2020. In its Economic Outlook released Magok, resulting in a decrease in total net Financial institutions & insurance employees (LHS) in February 2021, BoK forecasts the global Unit: thousand persons absorption of 25,800 sq m. Total employment (RHS) economy to recover on stimulus programs In YBD, large-scale lease demand was 1,200 30,000 and mass vaccinations, while the domestic centered on recently constructed buildings 28,000 economy is expected to be boosted by strong 1,100 by first-time tenants and financial services exports and investment. Meanwhile, private companies. LG Energy Solution and GC 26,000 consumption is likely to recover slowly, and 1,000 Healthcare relocated to Parc.1 Towers 1 and employment is expected to remain sluggish 24,000 2, respectively, while KTB Investment & 900 in the short-term. BoK expects exports to Securities and Leesang Investment Group 22,000 continue their positive trend backed by moved to Yeouido Post Tower. Yeouido Post 800 global economic improvement and facilities Tower, which was supplied last quarter, is 20,000 investment to stage a solid recovery. BoK fully leased within 3 months of completion 700 18,000 forecasts real GDP to grow by 3.0% in 2021 by offering lower-than-district-average and 2.5% in 2022. rents. YBD showed the highest increase in 600 16,000 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 Jan-18 Jan-19 Jan-20 Jan-21 Source Korean Statistical Information Service TABLE 1: New Supply, Q1/2021 TABLE 2: Monthly Rents, Maintenance Fees and Vacancy Rates by District, Q1/2021 (Unit: KRW/3.3058 sq m, GLA) BUILDING RENT MAINTENANCE FEE VACANCY NET Center Field RATE NAME DISTRICT ABSORPTION YOY YOY (%) AVERAGE AVERAGE (SQ M) INCREASE (%) INCREASE (%) (PREV. Q) ADDRESS Gangnam-gu, Seoul 13.1% CBD 112,200 1.6% 44,500 1.8% -17,300 (12.6%) Total: 239,252 GFA (Office: 169,219, (SQ M) Retail: 25,834, 12.1% Hotel: 44,892) GBD 100,500 1.8% 40,500 1.2% -25,800 (3.9%) COMPLETION January 2021 22.6% YBD 88,700 3.4% 40,100 0.9% 82,700 (27.4%) Overall Seoul 15.1% FLOOR 36F/B7F 103,700 2.0% 42,300 1.4% 39,600 Average (13.6%) Source Savills Korea Source Savills Korea savills.co.kr/insight-and-opinion/ 2 Seoul Prime Office lease demand among the major districts in space as of Q1/2021. While this, in turn, GRAPH 3: Net Absorption, Q1/2012 to Q1/2021 Q1/2021 with an increase in net absorption created vacancies, large-scale tenants have of 82,700 sq m. been rapidly filling up the subject properties. Unit: 1,000 sq m CBD GBD YBD 350 In Q1/2021, the vacancy rate of the Seoul There are numerous relocations and 300 prime office market stood at 15.1%, up 1.5% space reductions planned in CBD, but pts QoQ. CBD vacancy increased 0.5% pts to vacancy is expected to decline on higher net 250 13.1%, and YBD decreased 4.8% pts to 22.6%. take-up. Hyundai E&C TFT (12,400 sq m) 200 GBD vacancy climbed to 12.1% following lease expiry with Concordian Bldg. is set 150 the completion of Center Field (7% of GBD to expire and McKinsey Korea (4,700 sq m) 100 GLA), while the vacancy rate excluding will relocate from Center 1 to IFC Three. 50 Center Field increased by 1.2% pts QoQ to However, Olive Young (7,900 sq m → 12,000 0 5.1%. sq m) will expand within CBD from Twin -50 City Namsan to KDB Life Insurance Bldg., -100 RENT and SK Networks (26,200 sq m) and Seoul The average face rent for prime office -150 Tourism Organization (10,000 sq m) will space in Seoul ticked up by 2.0% YoY to -200 fully occupy Samil Bldg. Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 KRW103,700/pyeong. YBD exhibited the In GBD, Coupang (26,100 sq m) and 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 highest growth, rising 3.4% YoY, followed by PeopleFund (4,000 sq m) will wholly Source Savills Korea GBD (1.8% YoY) and CBD (1.6% YoY). While occupy HJ Tower, and Krafton (27,000 sq rent hikes usually occur at the beginning m) will relocate to Center Field. Center of the year, increases were likely limited on Field’s occupancy rate stood at around 23% large vacancies and the overall economic as of end-March and is set to reach 56% in downturn. In addition, rent-free allowances Q2/2021 upon successful closure of ongoing GRAPH 4: Prime Office Vacancy Rate, Q1/2012 to increased in a number of buildings with high Q1/2021 lease negotiations. New tenants are also vacancies in CBD. CBD GBD YBD expected to move into Kyobo Gangnam 30% The maintenance fee for Seoul prime Tower in Q2 and Q3, taking up 13,500 sq offices rose 1.4% YoY to KRW42,300/pyeong.