Office Leasing Demand Falls for Third Consecutive Quarter

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2009-07-02 11:05

Seoul--(뉴스와이어)--Results from Savills Korea’s latest office market survey, released today, showed ongoing falls in office leasing demand, which is now in its third consecutive quarter of decline.

Average vacancy in Seoul’s prime office buildings jumped from 2.0 per cent in Q1/2009 to 3.3 per cent in Q2/2009. Of the three major business districts, the CBD saw the largest increase, with the vacancy rate more than doubling from 1.6 per cent to 3.3 per cent.

“Despite signs of a turnaround in Korea’s economy, the downturn is continuing to have a big impact on the leasing market. Extremely sharp falls in finance and insurance employment in particular have reduced demand for office space”, said JoAnn Hong, head of Savills Korea Research & Consulting.

However, unlike all other major office markets in the region, landlords of prime buildings in Seoul are yet to reduce their rents. Virtually all landlords froze rents at Q1/2009 levels, reducing the annual rate of growth to 3.9 per cent, down from the peak of just under 8 per cent at the end of 2009.

“Although landlords are holding rents steady, many have started offering incentives such as rent free periods to attract or retain tenants. This means the effective rent paid by tenants has fallen by around 10 per cent in some cases.”

“Given our expectations for increases in vacancy in the second half of this year due to both new supply and continuing weak demand, the pressure on landlords to reduce rents will inevitably increase over the next 6 months” said Ms Hong.

In contrast to the leasing market, the sales market saw a rebound in investor confidence over Q2/2009, buoyed by the brighter economic outlook and improved lending conditions. Market prices look to have clawed back around half of the 25 to 30 per cent fall in transaction prices that was seen over the previous two quarters.

“The rebound in transaction prices has been driven by cash rich domestic investors who have made an aggressive return to the commercial property market. While foreign investors have also been actively reviewing opportunities, they have almost been entirely squeezed out by local players.” concluded Ms Hong.

The Savills Korea Prime Office Market Survey, released quarterly, is the longest running and most extensive survey of prime office stock in Seoul. Established in 1994, Savills Korea is the leading provider of commercial real estate services in South Korea.

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