Cushman & Wakefield, the world’s largest privately held real estate firm, presents the 2013 Seoul Office Market forecast and summarizes its key findings on three major office districts.

Excessive new supply of Grade A buildings resulted in a high vacancy rate in 2011. Abundant new supply led to advantages for tenants, including rent-free periods. However, the concession packages have moderated through the third quarter of 2012 due to demand recovery. Leasing activity remained healthy during the first half of 2012.

Central business district

Strong demand characterized the CBD area in 2012, as major companies consolidated disparate units into central office spaces. For example, this year saw many conglomerates such as Hyundai E&C, Lotte Asset Development and Amore Pacific move to new prime buildings to take advantage of abundant space options.

Although the CBD’s vacancy rate has been falling consistently in the second half of 2012, the expected new offices will boost the vacancy rate in 2013. In the CBD area, new office buildings such as the Doryum-dong Building (Doryum 24), N Tower, Myeong-dong 3 District and various Cheongjin district offices are scheduled to be supplied in 2013.

Monthly rental growth is expected to continue to show a weak, steady trend due to the influence of an increased vacancy rate. The rental rate in the CBD will maintain its stable level or increase slightly by 2 percent to 3 percent. However, landlords will restrict rental-free incentive periods (one or two months) on the back of a recovery in office demand in 2012.

Gangnam business district

Meanwhile, although some major IT companies begin to move into emerging districts like Pangyo and Bundang because of the limited supply of new buildings, the lack of new construction and healthy demand will sustain low vacancies in Gangnam, which, in turn, fuel moderate rent increases.

Yeouido business district

The YBD area’s leasing market was stable in the first half of 2012, recording a low vacancy rate. However, this trend will not last too long as new prime office buildings including Two IFC, Three IFC and FKI building will be available for lease in 2013. In the YBD area, the vacancy rate for the large-sized prime office buildings is expected to increase.

Conclusion

Although landlords have restricted rental-free incentive periods (one or two months) due to increased demand in 2012, we expect tenant-favorable conditions to prevail in Seoul’s office rental market until some of the excess supply is absorbed. Thus, leasing transactions involving upgrading from a lower grade to new prime office buildings is expected to continue in 2013.

This article was contributed by Cushman & Wakefield Korea, which consults corporate clients on leasing, sales and management services. ― Ed.