Offices. Savills Research. Savills Research I Seoul, Korea. February 6, 2012

Transcription

1 Savills Research I Seoul, February 6, 212 "The fourth quarter net absorption of 26, sq m represented 43% of total 211 net absorption of 68, sq m. This exceeded annual supply of 482, sq m and drove the vacancy rate down to 7.5% from 9.8% in /21. The 211 investment volume topped-out at KRW3.8 trillion, higher than in 21. Image: A view of Seoul, The Seoul prime office vacancy rate is likely to remain stable in /212. However, with additional new supply in and, it is expected to rise moderately. The fourth quarter transaction volume of KRW1.1 trillion was a 25% increase year-on-year. The stand-out transaction was the acquisition of the recently completed Pharos Tower by PS AMC from SK D&D. Major fourth quarter tenant movements included SK Construction moving into Euljiro Mirae Asset Tower; Deloitte, LG Hausys and Daiwa Securities entering One IFC; and LG affiliates heading back to LG Twin Tower following completion of remodelling. Savills Research GDP growth of 3.7% is forecast in 212, up fractionally from 3. in 211, as global economic concerns continue to weigh on s export-dependent economy.

2 Market overview Monthly rents and vacancy rates by district, /211 Supply No new prime office buildings were completed in. However, after 13 months of remodelling first the West Tower then the East Tower, LG Twin Tower re-entered the market and a number of LG affiliates relocated back to the building from Seoul Square in the. supply, /211 name GFA Floors Remarks LG Twin Tower (East) 78,917 34/F B3/F Owner occupied Average rent (KRW per sq m, based on GLA) Average rent (KRW per sq m, based on NLA) YoY increase rate (%) In 212, four new prime office buildings are scheduled to come to the market the Junghak project and State Gwanghwamun in the, and Two and Three IFC in Yeouido business district (). The total area for these buildings, 361, sq m, represents a 3 decline in new supply compared with 211. No further supply is expected in Gangnam business district () during 212, with the next forecast completion not until September 214. New supply (excluding remodelled buildings), Vacancy rate (%) 91,6 16,8 1.5% 13.7% 79,6 155,4 1.2%.7% 68,2 142,1 3.3% 5. Overall Seoul average One IFC YG Tower Mirae Asset Tower/Pine Avenue Signature Tower 83,1 155,4 1.7% 7.5% State Gwanghwamun Two IFC Three IFC Doryeom 24 1 State Namsan Sunhwadong N Tower GT Tower Junghak Dongjadong Unit: 1, sqm FKI Planned building supply, 212 name GFA Floors Three IFC 16,776 55/F B7/F Two IFC 78,997 29/F B7/F Junghak 83,787 16/F B6/F Total State Gwanghwamun Demand and vacancy rate 37,516 23/F B6/F 361,76 sq m The finance and insurance sectors, the largest source of Seoul prime office demand, employed a record high of 868, people in November, before dipping slightly in December due to seasonal layoffs. Despite the overall jobless rate remaining at a three-year low in December, the central bank has predicted a slight rise in unemployment in 212 as job creation slows to 28, from 4, in 211. The government has also announced that the country s 3 largest local companies will expand their workforce by 2.2% in 212. Employment in the financial and insurance sectors, Dec 22 Dec Number employed (thousands) 68 Dec-2 Dec-3 Dec-4 Dec-5 Dec-6 Dec-7 Dec-8 Dec-9 Dec-1 Dec-11 Source: Bank of The fourth quarter saw near-record net absorption of 26, sq m as tenants migrated to recently completed buildings, with Euljiro Mirae Asset Tower and One IFC the biggest winners. As a result, the Seoul prime office vacancy rate declined to 7.5% from 11. in. Total net absorption for 211 reached 68, sq m, more than two and a half times the 21 level. Over 2 offices and associates throughout the Americas, Europe, Asia Pacific, Africa and the Middle East. I 2

3 Net absorption was strongest in the (123, sq m) bringing the vacancy rate down by 5.1% to 13.7%. SK Construction s take-up of 65,8 sq m at Euljiro Mirae Asset Tower filled up the property, while Signature Tower welcomed Medicom and Kyobo Life Insurance from Jeongdong and Twin Trees respectively. Annual new supply and demand (Inc. remodelled bldgs.), Annual net additions to supply Annual net absorption Net absorption, /28 /211 unit : 1, sqm (5) (1) Unit:1, sq m (15) Take-up, /211, 211 / New Organisation Expansion Prime to Prime 29% Expansion 15% New Organisation 13% P r ime to Prime 21% -2 The s net absorption was also strong, totalling 113, sq m, as LG Twin Tower re-entered the market following remodelling, and a number of LG affiliates, including LG Petrochemical, LG Display and LG International, moved back in. Thanks to significant prelease commitments, by the end of 211 One IFC s occupancy rate reached 8% and the s vacancy rate declined to 5. from 13.% in. Seoul prime office vacancy rates /22 /211 2% 18% % 1% 8% 2% % One IFC accounted for the majority of prime-to-prime tenant movement during, but prime take-up continues to be dominated by the relocation of secondary tenants. In fact, in 211, 51% of all prime buildings move-ins were relocating from secondary buildings, a trend which is set to continue in 212. Seoul prime office vacancy by area, /211 / Secondary to Prime 61% Secondary to Prime 51% % of surveyed buildings /211 /211 /211 /211 The situation in the remains starkly different to the other markets due to the ongoing supply drought. Vacancy tightened to.7% on the back of 24, sq m of net absorption. The majority of take-up was focused in GT Tower, the only new property to enter the market in 211, where Kolon Industries was the most significant new arrival. Elsewhere in the, Hansol shifted out of Capital Tower and headed to Pine Avenue in the. Less than 5% 5~1% 1~15% Over 15% Over 2 offices and associates throughout the Americas, Europe, Asia Pacific, Africa and the Middle East. I 3

4 Seoul prime office vacancy by building, /211 / Euljiro Mirae Asset Tower / Pine Avenue 45 Signature Tower 4 21% One IFC 35 3% 3 47% 1 State Namsan 25 13% 2 Kyobo 19% 15% 22% % 1 11 % 15% 1 32% 3% 5 19% 1% 13% Twin Tree Center Rent Year-on-year rental growth improved.3% to 1.7% in as five buildings increased their rents, including Center One and Capital Tower. No buildings have decreased their rents for three consecutive quarters. Increases and decreases of Seoul prime buildings face rents, /28 /211 8 No. of bldgs increasing rent No. of bldgs decreasing rent Average market YoY rental growth(rhs) 8% 7 7% Outlook % The Seoul prime office vacancy rate is likely to remain static in as the positive impacts of the annual corporate hiring season and relocations for leases already signed are balanced against sizeable vacancy opening up in Seoul Square as LG affiliates continue their relocation back to LG Twin Tower. A softening in vacancy will be then seen in and as new supply enters the market, although some pre-leasing is expected at the Junghak project. In particular, the August completion of both Two and Three IFC is likely to send the vacancy rate north of 2%. Nevertheless, the overall vacancy rate during 212 will remain below the historic peak seen in / Seoul prime office building face rents, /1997 /211 Gangnam Yeouido Index 21 = % 2% 1% % -1% Major tenant relocations, /211 Tenant SK Construction Kolon Deloitte LG Hausys Daiwa Securities Previous building name SK Construction Gwanhundong and SK Sunhwa Kolon Tower (Gwacheon), Cheongdam -dong Hanwha Finance Center & others Central Place Hana Daetoo Securities Lease area N/A Current building name Euljiro Mirae Asset Tower Lease area 65,8 N/A GT Tower 2,9 26, 28,23 One IFC 11,63 14,241 2,938 3, Outlook Rental growth will recover somewhat during /212 as more than 2 prime buildings are expected to implement annual rent hikes, the majority of which are located in the. Despite these increases typically being between 3% and 5%, average rental growth over the course of 212 is set to remain below forecast consumer price index inflation (3.3%) as absorption slows from record 211 levels. Rent-free periods of one to two months per year of lease are expected to be the norm, less than when incentives peaked in early 211. The is likely to experience the weakest growth of the three markets, as a result of rising vacancy rates due to the supply of Two and Three IFC, as well as the 213 completion of the Federation of n Industries (FKI) building and the cloud of Parc 1 still hanging over the district. Over 2 offices and associates throughout the Americas, Europe, Asia Pacific, Africa and the Middle East. I 4

5 Transactions and investment market The fourth quarter deal volume amounted to KRW1.1 trillion, which was only 3% off the 211 peak volume seen in. Despite this, a number of ongoing deals which were expected to close were delayed by fund-raising issues. Trends in Seoul office cap rates, /25 /211 Spread Cap rate Five-year Treasury Bond 9% 9 8% 8 7% 7 6 5% 5 4 The total 211 transaction volume of KRW3.8 trillion represented a decent improvement on the KRW2.4 trillion of properties which traded hands in 21. 3% 2% 1% % Transaction volume in the Seoul office building market, /21 / Unit: KRW trillions With the exception of the sale of Hanwha Janggyo between related parties (Hanwha Chemical to Life Insurance), no prime buildings changed hands in, although ten secondary buildings traded. The largest deal was for the newly completed Pharos Tower in Gangnam, which was acquired for KRW256 billion by PS AMC from SK D&D. A further five government buildings were contracted for sale with settlement delayed until these government divisions relocate outside of Seoul over the next two to three years. Looking forward to 212, GDP is expected to grow by 3.7% compared with 3. in 211. Despite the recent slowing economy, domestic investors are still enjoying abundant liquidity and are likely to remain the dominant players in the market. Their appetite for stabilised assets in core locations is unlikely to be impacted by short-term fluctuations in market sentiment and will help to support a moderate increase in the capital values of good-quality assets over the coming 12 months. For secondary properties in non-core locations, limited competition among bidders and therefore weak capital growth is foreseen. Major transactions, /211 name Hanwha Janggyo Seller Hanwha Chemical Pharos Tower SK D&D BBD BBD Daesung Industry Sungwoo Solomon Mutual Savings Bank Yeoksam-dong Bundang Seohyeon Worridul Soft Forum Hohae Hunus Samwhan Camus Annex Ministry of Justice* Consumer Agency* Education & Research Information Service* Workers Compensation & Welfare Service* Daesung Industry Hyundai Cement Solomon Mutual Savings Bank Hyundai You First Private REF #2 Worridul Life Sciences Purchaser Life Insurance PS Private REIT #6 Samsung Fire & Marine Insurance KVG #2 CR-REIT Area of transaction Transaction price (KRW billion) 74, , , , YSD 5, Trus K #8 REIT 17, The Redface 6, Soft Forum Hanwell 9, Alpha Mighty Private REIT #12 Hunus Samwhan Camus Ministry of Justice Consumer Agency Education & Research Information Service ESTsoft Corporation Individual investor Green Promotion Agency Land & Housing Corporation SG Development Workers M i n i s t r y o f Compensation & Employment Welfare Service and Labor Institute Institute of Public of Public Finance* Finance 9, , , , , Chung Hwa 15, , 36. N/A 9, *Contracted sale of government building with delayed settlement. Excluded from transaction volume analysis. Over 2 offices and associates throughout the Americas, Europe, Asia Pacific, Africa and the Middle East. I 5

6 Appendix 1: Overview of the Seoul office market and Savills office survey Close to 75% of large office buildings (3, sq m or more) in Seoul are located in three major business districts (36.5%), (24.7%), and (13.). The is the largest of these districts and is home to major government and multinational institutions. The also houses many multinational companies and is an information technology centre, while the, the "Wall Street" of South, includes the headquarters of major securities firms and broadcasting companies. Summary of surveyed buildings, Dec 211 Total Number of buildings A Average GFA 84,929 96,231 9,511 89,845 Average year of completion Number of buildings B Average GFA 49,274 39,153 44,115 44,614 Average year of completion Total number of buildings Total area 2,648,391 2,12, ,219 5,645,441 The Savills Quarterly Office Survey is the longest running survey of prime office stock in Seoul. Established in 1997, it currently comprises 87 of the 116 buildings in Seoul classified as "prime" buildings. Prime buildings: s with a GFA greater than 3, sq m with good accessibility and facilities, a high level of finish, and creditworthy blue-chip tenants. Monthly rent: Surveyed rents are "face rents", the asking rents reported by landlords for mid-level floors. These rents are standardised by Savills to account for variations in the security deposits required by different landlords to produce an effective rental figure for NLA. For further information, please contact: korea Moonduck Kim Chief Executive Officer, mdkim@savills.co.kr leasing services, korea Grace Ko Director, CRES graceko@savills.co.kr Seunghan Lee Director, Leasing & Marketing, Development Sales seunghanlee@savills.co.kr Sue Lee Director, Tenant Rep slee@savills.co.kr research & consulting, korea JoAnn Hong Associate Director jhong@savills.co.kr investment advisory, korea Crystal Lee Director csjlee@savills.co.kr Kookhee Han Director khhan@savills.co.kr asset management, korea Youngtaek Kim Vice President ytkim@savills.co.kr research & consultancy, asia pacific Simon Smith Senior Director ssmith@savills.com.hk address Savills Co., Ltd 11/F Seoul Finance Center 84 Taepyungro-1-ga, Chung-gu, Seoul, T: F: corporate website This document is prepared by Savills for information only. Whilst reasonable care has been exercised in preparing this document, it is subject to change and these particulars do not constitute, nor constitute part of, an offer or contract; interested parties should not rely on the statements or representations of fact but must satisfy themselves by inspection or otherwise as to the accuracy. No person in the employment of the agent or the agent's principal has any authority to make any representations or warranties whatsoever in relation to these particulars and Savills cannot be held responsible for any liability whatsoever or for any loss howsoever arising from or in reliance upon the whole or any part of the contents of this document. This publication may not be reproduced in any form or in any manner, in part or as a whole without written permission of the publisher, Savills. Savills (Hong Kong) Limited. 211.

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