South Korea's commercial real estate market retreated in the third quarter as foreign investments declined due to high pricing, according to a report from market tracker MSCI Real Assets on Thursday.

Local commercial real estate transactions in the third quarter stood at $4.6 billion, marking a 34 percent decrease on-year, the report showed.

Though South Korea was the top country in the Asia-Pacific region in terms of transaction volume in the previous quarter, it fell to the third-largest in the July-September period, lagging behind China at $7.4 billion and Japan at $5.9 billion. Australia and India followed with $3.9 billion and $1.5 billion, respectively.

Along with the transaction volume, deal counts dropped, too, falling by more than 50 percent year-to-date, staying in the mid-200s. The exact figures were not released.

The transaction volume of the domestic commercial real estate reached $13.7 billion year-to-date, dropping by 57 percent compared to the same period of last year.

The retreat in the transaction activity in South Korea was due to the "modest" pricing adjustments seen in response to persistent interest rate hikes, the MSCI Real Assets report explained.

While the pricing for office space, a major sector in commercial real estate, dropped globally after the pandemic, the Seoul market has been seeing high prices following strong demand.

As sentiment on the macroeconomic outlook deteriorated, sizable office deals fell through as buyers pulled out, delaying their sales beyond the current quarter in hopes of price adjustments.

“Cross-border interest in South Korea has shrunk since the first half of this year, particularly for office towers. Overseas investors are not just buying less, but also selling more,” said Benjamin Chow, head of Asia real estate research at MSCI Real Assets.

“Since May, virtually all the sales campaigns of major office buildings have ended with domestic buyers, while many of these were being sold by sellers from North America and Europe,” Chow said.