Savills World Research
Korea
Briefing
Seoul office sector
Q1 2017
Image : CBD, Seoul
SUMMARY
There is increasing demand for office upgrades, as the demand from prime office
tenants diversifies. The proportion of gaming and IT software companies, co-working,
and financial outsourcing companies increased.
 The Korean economy is estimated
to have expanded by 2.8% in 2016.
Due to anticipated export growth,
GDP projections for 2017 have been
revised upwards to 2.6%.
 Excluding Lotte World Tower, a
total of 97,800 sq m of new space
was supplied to the Seoul prime office
market in Q1/2017. Net absorption
was 90,000 sq m, up approximately
7% from the 84,000 sq m recorded in
Q1/2016.
 As of March 2017, the average
vacancy rate for Seoul prime offices
was 14.1%. Active relocations from
secondary to prime office buildings
occurred, due to increased demand
for office upgrades.
 As of March 2017, face rents rose
by 1%, which is lower than the current
CPI rate 2.2%. However, pronounced
divergences in buildings’ vacancy
rates have impacted their headline
rent movements.
"In Q1/2017, domestic office
market investment volumes
reached a record high, as many
deals which started in 2016
closed." Savills Research
savills.co.kr/research
01
Briefing | Seoul office sector
Supply
In Q1/2017, three new prime buildings
were delivered in Seoul. In the CBD,
Susong Square, Samsung Life
Insurance’s former office building in
Susongdong, was extended (New
GFA of 50,400 sq m with an additional
area of 5,500 sq m) and obtained
usage permission. In the YBD, SK
Securities Building in Yeouido (K
Tower, with a GFA of 47,400 sq m)
was completed. Lastly, Lotte World
Tower in Jamsil (with a GFA of
327,100 sq m and a total leasable
office area of 143,700 sq m) was
finally completed and will be partially
occupied by Lotte affiliates and
Descente.
Demand and vacancy
rate
In March 2017, the Bank of Korea
(BOK) estimated economic growth
of 2.8% for 2016. The BOK
explained at a meeting in April
that “Exports grew faster than
expected as the global economy
improved, which has supported
Korean economic growth. However,
considering the spreading trade
protectionism, it still has to be seen
whether export volumes will rise
back to the pre-global financial crisis
level.” The economic growth rate for
2017 is projected at 2.6%.
In Q1/2017, demand for Seoul
prime office buildings increased in
all three major office districts, with
total net absorption of 90,000 sq
m. A net area of 13,600 sq m was
absorbed in the CBD, 37,600 sq m
in the GBD, and 38,700 sq m in the
YBD. While the CBD saw a decrease
in net absorption, stemming from
Samsung’s financial affiliates
relocating to the GBD, overall net
absorption rose, due to active
leasing by new tenants.
Vacancy increased in Q1/2017, in
both the CBD and the YBD, as new
buildings completed in both areas.
Newly-supplied buildings will record
vacancy rate declines as they are
filled in Q2 by tenants which have
pre-leased space. However, as most
demand for those office space is
from prime-to-prime relocations,
there will be no change in the
Q1 2017
TABLE 1
Monthly rent and vacancy rate by district, Q1/2017
Average rent
Average rent
YoY rental
Net absorption Vacancy rate (%)
(KRW per 3.3058 (KRW per 3.3058
increase rate (%)
(sq m)
(Previous Quarter)
sq m GLA)
sq m NLA)
District
CBD
102,600
185,800
1.2%
13,600
17.3% (16.2%)
GBD
90,400
176,700
1.2%
37,600
7.9% (9.6%)
YBD
79,200
161,700
0.1%
38,700
17.0% (14.2%)
Overall Seoul
Average
93,800
177,900
1.0%
90,000
14.1% (13.6%)
Source: Savills Korea
GRAPH 1
Growth rate of real GDP and real exports, 2006 - 2018 (F)
Economic Growth (GDP, annual variance in %)
18%
17.1%
16%
14%
12%
Export Growth (annual variance in %)
12.4%
13.4%
13.5%
10%
8%
6%
5.5%
5.2%
6.5%
6.0%
4.4% 4.5%
4%
2.8%
2%
0%
3.7%
2006
2007
2008
0.7%
0.4%
2009
2010
2011
2.9%
2.3%
2012
2013
3.3%
2.6%
0.5%
2.3%
2014
2015
2.8% 3.30% 3.50%
2.20%
2016
2.6%
2.9%
2017F 2018F
Source: Bank of Korea
GRAPH 2
The number of employees in the financial and insurance sectors,
Mar. 2008 – Mar. 2017
1,200
Financial Institutions & Insurance Employment (LHS)
Total Employment (RHS)
Unit: thousand
27,000
1,100
25,000
1,000
23,000
900
21,000
800
19,000
700
17,000
600
Mar-08
Mar-09
Mar-10
Mar-11
Mar-12
Mar-13
Mar-14
Mar-15
Mar-16
15,000
Mar-17
Source: Korean Statistical Information Service
GRAPH 3
Net absorption, Q1/2008 – Q1/2017
350,000
300,000
250,000
200,000
150,000
100,000
50,000
0
-50,000
-100,000
-150,000
-200,000
CBD
Unit: sq m
GBD
YBD
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1
2008
Source: Savills Korea
2009
2010
2011
2012
2013
2014
2015
2016
2017
* Lotte World Tower in Jamsil, a prime grade A building, was excluded in the calculation of vacancy rate and rent but included in the net absorption area
savills.co.kr/research
02
Briefing | Seoul office sector
In Q1/2017, relocations from
secondary to prime, thereby
upgrading space, were a common
theme. Relocations for office
upgrades accounted for 61% of
all tenant movement, which is well
above the 36% posted in 2016,
and also the highest level ever
recorded. Meanwhile, prime-toprime relocations represented 11%,
and new office openings 18%,
due to WeWork, which opened a
new branch in the Daishin Finance
Tower.
The CBD posted a 17.3% vacancy
rate, with Daishin Finance Center
positively impacting occupancy
thanks to the WeWork deal.
However, the overall CBD vacancy
rate rose as the newly completed
Susong Square will not be occupied
until Q2. Excluding vacancies
created by new buildings, the
vacancy rate fell slightly from the
previous quarter to 15.6%. Samsung
financial affiliates’ relocation from
the CBD to the GBD, which started
in 2016, is nearly complete. Tenant
relocations are prevalent among
many affiliates of major companies
within the district, including CJ
affiliates, Lotte Global Logistics, KB
Kookmin Card and LG’s affiliates.
In the GBD, the vacancy rate
dropped 1.8%p from the previous
quarter to 7.9%, and remained
the lowest among the three major
office districts. CJ affiliates and
Riot Games have moved to Parnas
Tower. With the vacancy in Hanwha
Life Insurance’s office building
(Seochodong) was filled by Hyundai
Card / Capital as they opened an
integrated branch office. The GBD,
which has had virtually no space
from new supply, saw its vacancy
rate, which was pushed up by the
completion of Parnas Tower, return
to a similar level as Q1/2016.
The YBD posted a vacancy rate
increase to 17% as Yeouido SK
Securities Building (K Tower)
completed. An analysis of YBD
vacancy, excluding new office
supply, shows a vacancy rate of
14.4%, similar to the previous
quarter. A new branch established
by TEC leased space in Three IFC.
All vacancies within Shinhan Finance
Investment Building was absorbed
due to their own expansion, plus
an affiliate, Shinhan Aitas, taking
occupation. The vacancy in Daewoo
Securities’ Building, resulting from
Mirae Asset Daewoo’s CBD move,
was filled as Mirae Asset Life
Insurance moved their HQ here from
Samseongdong.
GRAPH 4
Proportion of all take-up space, Q1/2017
YBD
15%
CBD
49%
GBD
36%
Rent rates
In Q1/2017, the face rent of
Seoul office buildings was
KRW93,800/3.3sq m, up 1% from
Source: Savills Korea
GRAPH 5
Take-up, Q1/2017 vs. 2016
Q1/2017
2016
New
organisation
14%
New
organisation
18%
Expansion
10%
Expansion
17%
Secondary to
prime
61%
Prime to
prime
11%
Secondary to
prime
36%
Prime to
prime
33%
Source: Savills Korea
GRAPH 6
Seoul prime office vacancy rate, Q1/2008 – Q1/2017
CBD
30%
GBD
YBD
25%
20%
15%
10%
5%
0%
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
overall market vacancy rate. The
GBD vacancy fell due to demand
for office upgrades and companies
consolidating operations.
Q1 2017
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
Source: Savills Korea
savills.co.kr/research
03
Briefing | Seoul office sector
GRAPH 7
YoY rental increase rate by district, Q1/2008 – Q1/2017
CBD
9%
GBD
YBD
CPI growth rate(YoY)
8%
7%
6%
5%
4%
3%
2%
1%
0%
-1%
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
the same period last year. By
district, the CBD and GBD both
showed a 1.2% increase; the YBD
increased by a mere 0.1%, as
Yuhwa Securities Building raised
quoted rental deposits in exchange
for a 28% decrease in monthly
rent. Those buildings which raised
their face rents posted an average
increase of 3%. These increases
were mainly led by lease indexation
provisions or rent adjustments to
reflect the current market after
long-term tenants’ vacated. Three
buildings decreased rents within
the 1% range to offset higher
vacancy. Tenant inducements
such as rent-free periods, fit-out
periods and tenant improvements,
remain particularly evident in assets
suffering high vacancy rates.
Q1 2017
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
Source: Savills Korea, Bank of Korea
Outlook
In 2017, KEB Hana Bank’s office
building, slated for completion in
Euljiro in Q3, is the only remaining
building to be supplied in the three
major business districts. In areas
outside the three major office
districts, Amore Pacific’s new office
building (Yongsan) and Majestar
City (Seocho) will also complete in
Q3.
The CBD will continue to see the
most tenant relocation activity.
In Q2, Susong Square, which
underwent an extension and
extensive remodelling, will be
fully occupied after pre-letting.
SK E&C will take 80%, whilst SK
Telecom and SK Gas will use the
remaining office space. Existing
vacancies in other buildings will
be filled by large tenants: KB
Kookmin Card will lease space in
Tower 8; SK Communications and
service company MPC will relocate
to T Tower; and SKC will move
to the K Twin Towers. As such,
vacancy in the CBD will continue
to be absorbed. KEB Hana Bank’s
Euljiro office building will be solely
used by KEB Hana Bank, which
will relocate from Gran Seoul
and Seoul Square. In addition,
Amore Pacific, a large occupier in
Signature Towers, will relocate in
early 2018 to its new HQ. Lastly,
an array of conglomerate affiliates,
government-related organisations
and call centres are in the process
of moving to the Seoul station area
and will absorb vacancy.
Of the three major office districts,
the GBD is the most stable leasing
market, and this trend will persist.
Parnas Tower, which completed in
Q3/2016, currently posts a 41%
occupancy rate and is expected to
achieve full occupancy imminently,
following further expected deals
with professional services providers
and game-related IT software
companies. GT Tower is expected
to incur significant vacancy after
Kolon Industry moves to a nearby
secondary asset in Q2. Descente
will relocate from its current
building at Capital Tower to Lotte
World Tower in Q3.
SK Securities Yeouido Building
(K Tower), newly supplied in
the YBD, has already achieved
70% occupancy as it lured SK
Securities, currently located at
Samsung Life Insurance’s Yeouido
Building (occupation target of Q2),
plus HPE from in the HP Building
(occupation expected Q4). The
YBD is not expected to see further
vacancy declines as these two
companies are relocating from
prime buildings within the vicinity.
Transactions and
investment market
There is ongoing downward
pressure on the base interest rate
in light of economic fundamentals.
However, the benchmark interest
rate has remained at 1.25%, the
lowest ever level, since June
2016, amid capital flight concerns
triggered by fed rates looking likely
to overtake the BOK rate. Yields
on five-year government bonds
and borrowing costs rose slightly
in Q1/2017, continuing the upward
trend from Q4/2016, due to rising
the US interest rates and domestic
political uncertainty. Despite
a challenging political climate
(domestically and internationally),
Korean office investment volumes
exceeded KRW1.8 trillion, as
multiple property transactions,
which had been underway since
2016, were successfully concluded.
This was the highest ever Q1
volume.
Most transactional activity involved
buildings with an element of
vacancy risk, with a diverse array
of domestic and international
investors adopting different
approaches to mitigate this. The
Ilsong Building, for example,
attracted WeWork, a global coworking space provider, as an
savills.co.kr/research
04
Briefing | Seoul office sector
Q1 2017
anchor tenant, helping to create a
stabilised product and ultimately
securing the incoming investors.
For Metro Building, the incoming
investor is considering conversion
into an officetel as a strategy.
(KRW6.66million/3.3sq m) in March
2017. Booyoung Songdo Tower’s
vacancy rate is approximately 40%,
and Posco are said to have masterleased its existing leasing area for
five years.
In January 2017, the Booyoung
Group, a domestic construction
company, purchased the Booyoung
Eulji Building (formerly the Samsung
Fire & Marine Insurance Building)
for KRW438 billion. With a building
coverage ratio of 73%, which is
higher than other prime buildings,
the asset has a vacancy rate
exceeding 75% after Samsung Fire
& Marine Insurance vacated. They
also acquired Booyoung Songdo
Tower (formerly Posco E&C Tower)
from Posco E&C for KRW300 billion
IGIS Asset Management purchased
the Samsung Taepyeongno
Building located on Taepyeongno
2-ga from Samsung Life
Insurance for KRW230 billion
(KRW19million/3.3sq m). The major
investor is understood to be a
domestic party. Following Samsung
Life Insurance’s relocation to
Seocho, the asset now has a
significant amount of space to
lease.
IGIS Asset Management also
acquired T Tower, located near
Seoul station, from Midas Asset
Management for KRW188.7 billion
(KRW14.99 million/3.3sq m) in
January 2017. The major investor is
PGIM from the Prudential Financial
Group. T Tower, which did pose
significant leasing risk, has recently
attracted new tenants, including
MPC and SK Communications, and
is now effectively stabilised.
KTB Asset Management acquired
the Ilsong Building, located on
Teheran-ro, from Mirae Asset
Management for KRW127.1
billion (KRW20.89million/3.3sq
m) in March 2017. Two European
investors invested the full equity for
the deal. WeWork signed a 15-year
lease in the building, which offers
TABLE 2
Major tenant relocations, Q1/2017
To
District
From
Building
Tenant
Area (sq m)
District
Daishin Finance Center
WeWork
18,200
NEW
Twin City Namsan
CJ Olive Networks
9,900
Bundang
First Tower
Yonsei Severance Bldg
Lotte Global Logistics
5,500
CBD
Hyundai Group Bldg (West)
Tower 8
KB Card TF
3,900
CBD
Daewoo Plaza Bldg
Yonsei Severance Bldg
Lotte Logistics
3,700
CBD
Yonsei Bongrae Bldg
Pacific Tower (former Olive Tower)
CMA CGM
2,600
CBD
Hanwha Finance Centre
Taepyeongro
T Tower
LG Electronics
2,400
Non-core
Buildings from outside Seoul
SC First Bank HQ
Zigbang
2,300
CBD
Samil Bldg
Twin City Namsan
Skechers Korea
2,000
Non-core
LS Yongsan Tower
Jongno Tower
SPARX Asset Management
1,500
YBD
Two IFC
Hanwha Life Seocho HQ
Hyundai Card/ Hyundai Capital
10,000
GBD
Branch Consolidation and
Relocation
Parnas Tower
CJ E&M
9,900
Bundang
First Tower
Parnas Tower
Riot Games
8,500
Non-core
ICT Tower (Shinsa-dong)
Parnas Tower
Mezzo Media
4,900
Bundang
First Tower
Glass Tower
Parexel Korea
3,700
GBD
Haesung 1 (Daechi-dong)
Samsung Life Insurance
Seocho Tower
Samsung Life Insurance
3,700
CBD
Samsung Life Insurance
Taepyeongro Bldg
Capital Tower
Viva Republica
1,600
GBD
Hyunik Bldg (Yeoksam-dong)
Shinhan Financial Investment Tower
Shinhan Aitas
3,500
YBD
Excon Venture Tower
KTB Bldg
Linde Korea
2,200
YBD
Kiwoom Finance Square
HP Bldg
Sillajen
1,900
YBD
Korea Teachers' Pension Bldg
Three IFC
TEC
1,800
NEW
CBD
GBD
Building
YBD
Source: Savills Korea
savills.co.kr/research
05
Briefing | Seoul office sector
Q2
Q3
Q4
8
7
6
5
4
3
2
1
0
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
Source: Savills Korea
GRAPH 9
Prime office building cap rate trends, Q1/2005 – Q1/2017
Spread (RHS)
Cap rate (LHS)
Five-year treasury bond yield (LHS)
9%
900
8%
800
7%
700
6%
600
5%
500
4%
400
3%
300
2%
200
1%
100
0%
Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
0
2016 2017
Source: Savills Korea, Bank of Korea
GRAPH 10
Five-year treasury bond yield and benchmark interest rate trends,
Jan. 2012 – Mar. 2017
5yr Treasury bond yield
The Bank of Korea Base Rate
4.0%
3.5%
3.0%
2.5%
2.0%
2017-03-31
2017-01-31
2016-11-30
2016-09-30
2016-07-31
2016-05-31
2016-03-31
2016-01-31
2015-11-30
2015-09-30
2015-07-31
2015-05-31
2015-03-31
2015-01-31
2014-11-30
2014-09-30
2014-07-31
2014-05-31
2014-03-31
2014-01-31
2013-11-30
2013-09-30
2013-07-31
2013-05-31
2013-03-31
2013-01-31
2012-11-30
1.0%
2012-09-30
1.5%
2012-07-31
As of Q1/2017, 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 March,
even though the yield on five-year
government bonds rose above
1.8%, the spread was in the
neighborhood of 300 basis points
(bps). In general, the available LTV
is 55% in the Korean investment
market. 
Q1
Unit: KRW (Trillion)
9
2012-05-31
In addition to hard asset
transactions, a number of forward
sales have been recently executed.
Dongbu AMC (Orion Partners
backed by an overseas pension
fund) contracted to acquire 5th
District in Seosomoon at the end of
March. KORAMCO AMC committed
to an MOU on the A Building at
Majestar City, following the sale
of B building, which was forwardpurchased last year by IGIS AMC
(Invesco was the investor). More
forward sales are expected as
developers look to de-risk early,
while investors are prepared to
tolerate leasing risk in order to
enhance returns and / or secure the
best new assets.
Seoul office transaction volumes, Q1/2008 – Q1/2017
2012-03-31
The Bareun Building in Gangnam
was sold for KRW77.7 billion
(KRW22.63million/3.3sq m)
through IGIS Core Office Public
Offering Real Estate Investment
Trust 117, created by IGIS Asset
Management. Approximately
KRW33 billion was raised through
the public offering fund. A stable
dividend helped entice investors
as the asset was sold with the
benefit of a 10-year master lease
to law firm Bareun. Its location
close to the Hyundai Motors Global
Business Center development,
slated for completion in 2021, was
also a major selling point.
GRAPH 8
2012-01-31
an unusually long income profile
with scope for capital value growth
driven from surrounding area
improvements. Asset management
companies targeting and attracting
co-working space tenants in order
to de-risk vacancy and maximise
WALT (Weighted Average Leased
Term) remains a common trend.
Q1 2017
Source: Bank of Korea
savills.co.kr/research
06
Briefing | Seoul office sector
Q1 2017
TABLE 3
Major investment transactions, Q1/2017
Building Name
Seller
Buyer
Transacted area
(sq m)
Transaction price
(KRW bil)
T Tower
Midas AMC
IGIS AMC
41,598
188.7
Booyoung Eulji Building
(former Samsung Fire &
Marine Insurance Building)
Samsung Fire & Marine Insurance
Booyoung Group
54,654
438.0
Samsung Taepyeongno
Building
Samsung Life Insurance
IGIS AMC
40,002
230.0
Ilsong Building
Mirae Asset Management
KTB AMC
20,126
127.2
Metro Building
Samsung Life Insurance
Mastern AMC
13,201
86.5
Bareun
Law Firm Bareun
IGIS AMC
11,350
77.7
Booyoung Songdo Tower
(former Posco E&C Tower)
Posco E&C
Booyoung Group
148,790
300.0
District
CBD
GBD
Others
Source : Savills Korea
Please contact us for further information
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CEO
Savills Korea
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[email protected]
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Investment Advisory
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Senior Director
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Director
PM Services
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Director
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07
Briefing | Seoul office sector
Q1 2017
Appendix
Overview of the Seoul office market and Savills Korea office survey
TABLE 4
Summary of surveyed buildings, Mar. 2017
CBD
GBD
YBD
Total
Number of buildings
22
12
9
43
Average GFA (sq m)
85,000
99,000
101,000
92,000
Average year of completion
2006
2004
2004
2005
Number of buildings
21
19
9
49
Average GFA (sq m)
55,000
47,000
45,000
50,000
Average year of completion
2002
1999
1996
1999
Total number of buildings
43
31
18
92
Total area (sq m)
3,030,000
2,080,000
1,310,000
6,430,000
A
B
Source: Savills Research & Consultancy
Close to 64.7% of large office
buildings (30,000 sq m or more) in
Seoul are located in three major
business districts – the CBD (32.3%),
GBD (18.3%) and YBD (14.0%). 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 92 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
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