Coupang, the largest operator of social commerce in Korea, will relocate to a new skyscraper called Tower 730 in Jamsil, southeastern Seoul, after the building is completed in February next year, the head of CBRE Korea said.

Darren Krakowiak, managing director of the Korean unit of the world’s largest real estate service firm, said the leasing deal with Coupang on behalf of Hyundai Investment Asset Management, the landlord of the building, was one of the biggest deals involving CBRE Korea in the past year.

“That was a big, high-profile deal,” Krakowiak said in an interview with The Korea Herald in central Seoul.

CBRE is a Los Angeles-based real estate services firm with 70,000 employees worldwide and global revenue of $11 billion in 2015. 

“The total leased area is about 17,000 pyeong and comprises 19 floors from eighth to 26th, which is the largest office lease in Korea in 2016.”

One pyeong is the equivalent of 3.3 square meters.

Tower 730 is near Jamsil Station, which is three stations away from Samseong Station on Subway Line No. 2, where the current head office of Coupang is located.

While the redundant supply of office space is expected to be replaced by “newer-generation office space that better meets the needs of today’s modern workforce and corporations,” the office real estate market in Seoul is expected to see a record high of deals this year, boosted by big foreign investors’ massive investments in iconic buildings, Krakowiak said.

Prominent examples include Brookfield Asset Management, a Canada-based alternative asset management company, which is set to purchase the International Financial Center in Yeouido for $2.5 billion. Market watchers say the deal is to be completed within this week.

New York-based global private equity giant Blackstone Group is buying Capital Tower, next to Gangnam Finance Center in Gangnam, for $500 million, as well.

The accumulated value of deals for office buildings in Seoul reached 4.46 trillion won ($3.81 billion) during the first nine months of this year, according to data from Savills Korea, a real estate services firm. The total value of deals this year will exceed 8 trillion won if the two deals by Brookfield and Blackstone are included, according to the company.

Krakowiak said foreign investors are more likely to take risks in the Korean real estate market, putting investment in “core-plus or value-add” buildings that tend to be located in non-prime locations, contain some vacancy risk or require some redevelopment. In contrast, Korean investors prefer “vanilla” type of assets that are more stabilized in terms of rent income, he said.

“There is attractive yields in the Seoul office market, versus other major markets. Return on investment is generally higher (in Seoul),” said the Australian native, who has spent the past nine years in Seoul. Prior to joining CBRE Korea in November last year, he was national director and head of markets at JLL Korea, another commercial real estate company.

“Yields have come down to a historic low in Seoul but are still generally high. Yields are at the high 4s (percent) to low 5s (percent) for good-quality office assets in major districts including Jongno, Junggu, Teheranro and Yeouido,” he said.

Another notable trend now is that landlords are converting office space to retail facilities to attract higher rent fees due to weak office leasing demand and changes in consumer spending patterns, Krakowiak said.

Office landlords can capitalize on single-person households, mostly young and unmarried professionals with high disposable income, by converting lower floors of an office building into dining facilities, he explained.

“Generally the retailers pay higher rents than the office tenants. Landlords can also increase the profile of their assets,” he said.

According to a study by CBRE Korea, the average rent fees for the lower floors of three sample office buildings was 108,980 won per pyeong. Once they were converted into retail facilities, the average rent fees more than doubled to 237,545 won per pyeong, the study said.

The office market will keep growing in Korea as on-going corporate restructuring in ailing sectors will prompt some companies to sell off their real estate to new investors including foreign ones, Krakowiak said.

“Many investors that previously invested in Korea during the last cycle, and had disposed of all of their assets, are now coming back to reenter the market,” he said.

The rapid growth of asset management market in Korea will be another driver for larger investments in the commercial real estate market, he noted.

By Kim Yoon-mi (yoonmi@heraldcorp.com)