Briefing Seoul office sector Q2 2017

Transcription

1 Savills World Research Korea Briefing Seoul office sector 2017 SUMMARY The BOK revised their projected growth rate for 2017 on the back of export increases in semiconductor and petrochemical industries, aligned with the global economic recovery and growing consumer confidence in the domestic market. Image : CBD, Seoul After the office relocation of Samsung s HQ to the GBD completed, part of this vacancy was leased by the BOK and thus take up in the CBD, increased QoQ. While leasing in the YBD increased only within the district, overall market demand showed signs of stagnation; take up in the GBD declined, with a fashion retailer opting for cheaper space. Both rent and maintenance fees rose by 1% (YoY), a similar increase as. Signature Towers Seoul traded, representing the largest hard asset single office transaction in 2017, contributing to 1H volumes increasing YoY. "As the South Korean economy enjoyed continuing stability, for commercial leasing demand increased and investment activity continued to thrive." Savills Research savills.co.kr/research 01

2 Briefing Seoul office sector 2017 Supply No prime office buildings were newly supplied in the major districts in /2017. However, the two office buildings at Seocho Majestar City completed with 30% prelet (Tower B), with Green Cross (pharmaceutical) and Olympus Korea (camera manufacturer) the tenants secured to date. Demand and vacancy rate During a monetary policy committee meeting held in early July, the BOK announced that they would raise the target annual growth rate for 2017 to 2.8% but froze the BOK base rate at 1.25%. In addition they mentioned that because of export volume increases in semiconductor and petrochemical industries, domestic economic growth would expand, whilst only a minor pressure on inflation was predicted from a demand perspective. The consumer price index is on course to hit the target level of 2%. In /2017, the net absorption of prime offices in Seoul was recorded at 36,000 sq. m overall, varying by district as follows: 54,100 sq. m, -23,000 sq. m, and 4,900 sq. m for the CBD, the GBD, and the YBD, respectively. As for vacancy rate, the CBD and the YBD dropped by 1.2%p and 0.4%p, respectively, whereas the GBD posted an increase by 1.2%p. The overall figure in Seoul was 14.3%, down by 0.2%p from. A number of large tenants moved to new buildings, which completed in /2017 both in the CBD and the YBD. Despite some significant leasing activity within those two districts, many moves were primeto-prime, leading to a minimal decrease in the average vacancy TABLE 1 Monthly rent, maintenance fee and vacancy rate by district, /2017 District GRAPH 1 Growth rate of real GDP and real exports, (F) Source: Bank of Korea Average Rent Rent GRAPH 2 The number of employees in the financial and insurance sectors, Jun 2008 Jun 2017 Source: Korean Statistical Information Service YoY increase (%) Average Maintenance fee Maintenance Fee YoY increase (%) Net Absorption Area (Sq. m) Vacancy Rate (%) (Prev. Q) CBD 103, % 39, % 54, % (18.1%) GBD 90, % 37, % -23, % (7.9%) YBD 79, % 36, % 4, % (17.1%) Overall Seoul Average TABLE 2 New supply, / % 16% 14% 12% 10% 8% 6% 4% 2% 0% 1,200 1,100 1, % 12.4% 94, % 38, % 36, % (14.5%) Building Name Address Completion Year Remarks 13.5% , Seocho-dong, Seocho-gu Majestar City Tower A, B GFA (sq m) (Unit : KRW/3.3058sq m, GLA) Tower A : 36,189 Tower B : 46, Floor 17F / B7F 17.1% Pre-let with Olympus and Green Cross Corporation Economic Growth (GDP, annual variance in %) Export Growth (annual variance in %) 6.0% 6.5% 5.2% 5.5% 4.4% 4.5% 3.3% 3.7% 2.6% 2.8% 3.50% 3.60% 2.8% 2.9% 0.7% 2.3% 2.8% 2.9% 2.3% 0.5% 2.20% 0.4% F 2018F Unit: thousand Financial Institutions & Insurance Employment (LHS) Total Employment (RHS) 27,000 25,000 23,000 21,000 19,000 17, ,000 Jun-08 Jun-09 Jun-10 Jun-11 Jun-12 Jun-13 Jun-14 Jun-15 Jun-16 Jun-17 savills.co.kr/research 02

3 Briefing Seoul office sector 2017 rates. As for the GBD, Kolon Industry, a previous occupier of GT Tower, partially relocated to other buildings (some secondary), which led to the increased vacancy. In /2017, prime-to-prime office relocations were the most prevalent take-up at 40%. Upgrading from secondary to prime accounted for 34%, which was similar to the average figure from last year. Lastly, demand for expansion and from new organizations represented 15% and 11% respectively. Of all three major districts, the CBD had the highest take-up, with 72% of the quarterly vacancy absorbed. This number is disproportionately high relative to the CBD s size as it only accounts for 50% of the total prime office stock. The CBD s vacancy rate, dropped by 1.2%p QoQ to 16.9%, SK E&C relocated to Susong Square, with a reduced GFA of 19,800 sq m from Pine Avenue A. After LG Electronics moved to the LG Seoul Station building, vacancy for Seoul Square rose. The BOK, which is currently undergoing extensive building renovation expected to complete in June 2020, relocated to Taepyeongno Building (former Samsung HQ). In addition, several other anchor tenants, such as KB Card and MPC, relocated to Tower 8 and T Tower, respectively, taking up multiple floors in each building. The GBD s vacancy rate rose by 1.2%p to 9.1%. Kolon Industry s FnC division relocated to the entire Dongyang Finance Center Building (Secondary) as well as to some of Samsung Life Insurance Building in Samsung-dong (Prime), from GT Tower, which is now around 40% vacant. In addition, following the merger with POSCO Daewoo, POSCO P&S relocated to Northeast Asia Trade Tower in Songdo, Incheon. Meanwhile, Parnas Tower welcomed new tenants, including Shire Korea, Kakao Friends and Shinsegae Properties. Lastly, vacant units in Hanhwa Insurance Seocho Building are currently being renovated into shared offices, named Dream Plus Gangnam Center, for start-up firms. The centre will be managed by Hanhwa Life Insurance. Finally, the YBD s vacancy rate, compared to that of, showed only a slight decline to 16.7%. GRAPH 3 Take-up, /2017 Expansion 15% New organisation 11% By Type Prime to prime 40% Secondary to prime 34% GRAPH 4 Net absorption, /2008 / , , , , , ,000 50, , , , ,000 New organisations relocated to both HP Building and KTB Buildings, reducing the districts overall vacancy marginally. SK Securities Building (K Tower), which was delivered in /2017, is now occupied by SK Securities, which relocated from Samsung Life Insurance Building Yeouido. The majority of YBD leasing was either relocations within the district or stemmed from new organisation demand. Rent rates The average face rent in /2017 rose by 0.9% from the same GBD 17% YBD 11% Unit: sq m CBD GBD YBD By District CBD 72% savills.co.kr/research 03

4 Briefing Seoul office sector 2017 period last year, reaching KRW 94,300/3.3 sq. m. By district, the CBD, the GBD, and the YBD showed 1.0%, 1.2%, and 0.1% increase, respectively. Only three minor rent adjustments were identified. Considering conventional market practice, in which most rent increases occur in of each year, no major changes were reported since the end of /2017. Outlook In terms of immediate new supply, the new KEB-Hana Bank HQ in the CBD will finish in July. Upon completion, their affiliates will begin a phased occupancy. As for the non-core districts, Amore Pacific s new buildings in Yongsan will be complete by year end. In the CBD, the most tenant activity is expected around the Seoul Station area. Seoul Square and Gran Seoul, both currently occupied by KEB-Hana Bank, will incur new vacancy. The LG Electronics former space in Seoul Square will be occupied by SK Planet and MSD. T Tower and Twin City Namsan will welcome SK Comms and CJ Olive Networks respectively. Those activities in addition to several more deals will help reduce vacancy within vicinity of Seoul Station. Furthermore, Pine Avenue A, located nearby Eulji-ro, which is now vacant after SK E&C s recent relocation, will be occupied by Shinhan Card in December this year. Overall the average vacancy rate of the CBD is likely to decline. In the GBD, Descente Korea, currently in Capital Tower, will relocate to Lotte World Tower in Jamsil, contributing to a slight expected increase in the GBD s vacancy, although Parnas Tower will house a number of large tenants, including law firm GRAPH 5 Seoul prime office vacancy rate, /2008 / % 25% 20% 15% 10% 5% 0% GRAPH 6 YoY rental increase rate by district, /2008 /2017 9% 8% 7% 6% 5% 4% 3% 2% 1% 0% -1%, Bank of Korea Yulchon and gaming entertainment company Blizzard. Also, the number of shared offices in the district will continue to increase as Fast Five is due open in August for business in Meritz Tower, and other shared offices have already signed with a number of secondary buildings as well. The vacancy rate in the YBD will remain at its current level. HPE s plan to relocate from HP Building to SK Securities Building, is intra district and thus no real influence on vacancies foreseen. LG CNS, located in FKI Tower (with a GFA of 43,000 sq. m) is expected to CBD GBD YBD CBD GBD YBD CPI growth rate(yoy) relocate to their buildings in Magok area, and will have a negative impact on vacancy early next year. Transactions and Investment market In 1H/2017, Korean office total investment volumes exceeded KRW4.2 trillion, with the major transactions in successfully concluded by domestic institutionled blind fund investors. The benchmark interest rate has remained at 1.25% since June However, there is upward pressure on this in light of economic fundamentals amidst capital flight concerns triggered by Fed rates savills.co.kr/research 04

5 Briefing Seoul office sector 2017 looking likely to overtake the BOK rate. & Securities will provide a rental guarantee on the vacancy. lease at a reduced rental level then passing. Igis Asset Management acquired Signature Tower Seoul for KRW 726 billion, which is the largest hard asset office deal in this year with the NPS blind fund. After Amorepacific Group vacates the premises in /2018, Hanwha Investment In CBD, Yuanta Securities exercised their pre-emption option for its building and appointed NH-Amundi Asset Management as the new buyer. NH-Amundi blind pool is the major investor in the deal. Yuanta Securities signed a new master Samsung SRA acquired the Samsung Life Yeoksam building in GBD. NPS blind pool invested into this deal with further NPS blind fund acquisitions pending. This building has a vacancy rate of sub-3%, with its anchor tenants TABLE 3 Major tenant relocations, /2017 To From District Building Tenant Area (sq m) District Building Samsung Main Bldg The Bank of Korea 43,800 CBD The Bank of Korea HQ Susong Square SK E&C 40,500 CBD Pine Avenue A The K Twin Towers SKC 10,300 GBD Kyobo Gangnam Tower Tower 8 KB Card 10,300 CBD Daewoo Plaza T Tower MPC 8,100 CBD Daewoo Foundation Bldg and New Organization Susong Square SKT 7,400 CBD Seoul Finance Center CBD The K Twin Towers Ace Chubb Life 4,300 CBD Seoul City Tower & Ferrum Tower Wise Tower Meritz Fire & Marine Insurance 3,100 YBD Susong Square SK GAS 2,400 CBD Pine Avenue A Meritz Fire & Marine Insurance Yeouido HQ and New Organization Pine Avenue B Puma 2,400 Non-core KSCFC Bldg (Sindaebang-dong) Booyoung Taepyeong Bldg Kim Chang & Lee 2,300 CBD Wonseo Bldg D Tower Fursys 2,100 NEW Center1 Willis Towers Watson 2,100 CBD Ferrum Tower & Officia Bldg Jongno Tower TEC 2,000 NEW Center Place MSC Korea 1,800 CBD Hanjin Bldg Hanwha Life Seocho HQ Dreamplus Gangnam Center 6,900 NEW Samsung Life Insurance Samsung-dong Bldg Kolon Industries 4,300 GBD GT Tower Parnas Tower Kakao Friends 3,300 GBD GT Tower GBD Parnas Tower Shinsegae Property 3,200 CBD SC First Bank HQ Auto Way Tower Alcatel-Lucent 2,700 GBD ASEM Tower Posco Center Analog Devices Korea 1,800 NEW Parnas Tower Shire Pharma 1,700 NEW SK Securities Bldg (K Tower) SK Securities 15,800 YBD Samsung Life Insurance Yeouido YBD KTB Bldg Hwaseung Networks 1,800 NEW HP Bldg Inspire Integrated Resort 1,100 NEW KTB Bldg HUG 1,100 YBD Korea Enterprise Data savills.co.kr/research 05

6 Briefing Seoul office sector 2017 Samsung Life Insurance and Samsung Electronics. GRAPH 7 Seoul office transaction volumes, /2008 /2017 Hanssem, a domestic furniture company, purchased the Pantech building in DMC. Dongwon F&B acquired Trust Tower, Yangjae. The asset is situated directly next to Dongwon Industries Building, with Dongwon F&B using the vacancy for their own office and R&D center purposes Unit: KRW (Trillion) MSRE s core fund recently bought Susong Square in CBD which was enlarged by about 12% early this year. SK E&C and other SK affiliates leased the asset for 10 years, providing long-term defensive income. The estimated cap rate is thought to be in the low 5%s. As of /2017, assuming a 90% occupancy based on face rents, the prime Seoul cap rate equates to 4.7%. However, if one considers current effective rents, prime net initial yields are trading in the low 4% range. At the end of June, yield on five-year government bonds rose beyond 1.9% and has flucutated between 1.8%-1.9% since November GRAPH 8 Prime office building cap rate trends, /2005 /2017 9% 8% 7% 6% 5% 4% 3% 2% 1% 0% Spread (RHS) Cap rate (LHS) Five-year treasury bond yield (LHS) , Bank of Korea GRAPH 9 Five-year Treasury bond yield and benchmark interest rate trends, Jan Jun % 5yr Treasury bond yield The Bank of Korea Base Rate 3.5% 3.0% 2.5% 2.0% 1.5% 1.0% Source: Bank of Korea savills.co.kr/research 06

7 Briefing Seoul office sector 2017 TABLE 4 Major investment transactions, /2017 District Building Name Seller Buyer Transacted area (sq m) Transaction Price (KRW bil) Signature Towers Seoul Shinhan BNP Paribas AMC IGIS AMC 99, CBD Yuanta Security Building Hana AMC NH-Amundi AMC 28, Alpha Building RREEF INTRUS AMC (REITs) 13, Susong Square SK D&D IGIS AMC (Morgan Stanley RE) 50,313 N/A GBD Samsung Life Insurance Yeoksam Building Samsung Life Insurance Samsung SRA AMC 32, Hite Jinro Seocho Building Mplus AMC Ryukyung PSG AMC 27, Others Trust Tower Golden Bridge AMC Dongwon F&B 36, Pantech Building INTRUS AMC (Orion Partners) Hanssem 66, Source : Savills Korea Please contact us for further information Savills Korea Savills Research K.D. Jeon CEO Savills Korea kdjeon@savills.co.kr Crystal Lee Senior Director Investment Advisory csjlee@savills.co.kr Seunghan Lee Senior Director Leasing & Marketing seunghanlee@savills.co.kr Hyunseok Jhee Director PM Services hsjhee@savills.co.kr JoAnn Hong Director Korea jhong@savills.co.kr Simon Smith Senior Director Asia Pacific ssmith@savills.com.hk Miah Yang Senior Director Retail Service mayang@savills.co.kr Savills plc Savills is a leading global real estate service provider listed on the London Stock Exchange. The company established in 1855, has a rich heritage with unrivalled growth. It is a company that leads rather than follows, and now has over 500 offices and associates throughout the Americas, Europe, Asia Pacific, Africa and the Middle East. This report is for general informative purposes only. It may not be published, reproduced or quoted in part or in whole, nor may it be used as a basis for any contract, prospectus, agreement or other document without prior consent. Whilst every effort has been made to ensure its accuracy, Savills accepts no liability whatsoever for any direct or consequential loss arising from its use. The content is strictly copyright and reproduction of the whole or part of it in any form is prohibited without written permission from Savills Research. savills.co.kr/research 07

8 Briefing Seoul office sector 2017 Appendix Overview of the Seoul office market and Savills Korea office survey TABLE 5 Summary of surveyed buildings, Jun CBD GBD YBD Total Number of buildings A Average GFA (sq m) 85,000 99, ,000 92,000 Average year of completion Number of buildings B Average GFA (sq m) 53,000 47,000 45,000 50,000 Average year of completion Total number of buildings Total area (sq m) 3,070,000 2,080,000 1,310,000 6,460,000 Source: Savills Research & Consultancy Close to 62.8% of large office buildings (30,000 sq m or more) in Seoul are located in three major business districts the CBD (32.4%), GBD (17.3%) and YBD (13.2%). The CBD is the largest of these districts and is home to major government and multinational institutions. The GBD also houses many multinational companies and is an information technology centre, while YBD, the "Wall Street" of South Korea, includes the headquarters of major securities firms and broadcasting companies. The Savills Korea Quarterly Office survey is the longest running survey of prime office stock in Seoul. Established in 1997, it currently comprises 93 of the 120 buildings in Seoul classified as "prime" buildings. Prime buildings: Buildings with a GFA greater than 30,000 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 Korea to account for variations in the security deposits required by different landlords to produce an effective rental figure for NLA. Cap rate calculation method Cap rate: (income from interest on security deposit (5%) + face rent of a standard floor + residual income from maintenance fee) occupancy rate (90%) 12 / transaction amount. For comparison of cap rates of each transaction case, a 5% interest rate on security deposit and 90% occupancy rate were uniformly applied. savills.co.kr/research 08