Insight

The real estate market is currently shaped by several key factors, including fluctuations in interest rates, economic slowdown, and evolving financing conditions. As a result, different sectors are experiencing distinct market dynamics. In response to these changes, IGIS' in-house research team has proactively analyzed the significant trends in Korea's commercial real estate market and developed tailored outlooks for each sector in 2025, ensuring our readiness for future market conditions. Sector forecasts INDUSTRIAL: South Korea’s logistics market showed high e-commerce penetration and size through 2023. In Q1 2024, e-commerce penetration rose slightly to 33%, driven by inflation rather than transaction growth. In H1 2024, small to medium properties saw slight price increases despite slower transaction volumes. The southeast experienced rapid price drops due to 2023’s massive supply increase. Vacancy rates reached 14% for dry and 41% for cold storage, with a notable supply-demand imbalance in the southeast. We expect a continued transaction slowdown as distressed assets enter the market, leading to auction-driven price corrections. While the new 2024 supply focuses on south/west regions, southeast vacancies should stabilize by 2025 due to strong demand and limited future supply. Cross-border e-commerce growth, both inbound and outbound, promises new demand. The west region, preferred by cross-border tenants for its global ports, is likely to absorb oversupply quickly. OFFICE: The South Korean office market has demonstrated relatively resilient performance compared to global markets, supported by supply constraints and a low adoption rate of remote work. During the first half of 2024, major completed deals were driven mainly by demand from global asset managers and corporate headquarters usage demand. Despite a modest increase in new supplies, most of the supply is focused on non-core business districts (i.e., Magok). As a result, leasing demand has continued to grow. Rents increased by 6-8% year-over-year, while vacancy rates remained low at 2.4%, well below the natural vacancy rate of 5%. However, a notable trend has emerged: the strong leasing momentum in the market began to slow, as evidenced by a decrease in rent growth and a slower increase in occupied space. We expect the office investment market to recover by late 2024, though price adjustments may extend cautious investor sentiment. Limited prime office supply will maintain demand over the next five years, but rapid price appreciation is unlikely. The trend toward prime/grade-A offices will continue, and distressed assets may increase as Korean savings banks realize losses from H2 2024. RESIDENTIAL: Korea’s rental housing market has traditionally been dominated by individual investors through direct ownership and the Jeonse system (unique lease arrangements with large refundable deposits), limiting institutional participation. However, recent market shifts – including slower housing price growth, reduced transactions, and Jeonse deposit risks – create new institutional opportunities. Three key factors support the sector’s potential: 1. Despite an aging population, household demand is projected to grow until 2040, with single and two-person households aged 40+ representing 70% of total households. 2. Declining housing development since 2020 has led to an aging inventory and limited high-quality options. 3. The current individual rental system’s inefficiencies and risks are becoming apparent. These factors and evolving tenant preferences make corporate rental housing increasingly attractive to institutional investors. RETAIL: The retail sector has seen a resurgence in commercial districts due to increased offline activities. However, it faces challenges from subdued consumer sentiment and a shift towards service-oriented spending. Transaction volumes remain below pre-pandemic levels, with limited diversity in transaction types. We propose a strategic change in the retail sector’s approach, focusing on traffic-generating attractions and value-added components. Enhancing overall appeal and viability could involve integrating retail spaces with other sectors, such as office, residential, or mixed-use developments. * Our investment strategies are implemented by experienced teams working in private and public markets. Our platform allows our investment professionals to gain local-level property and market insights from more than 450 in-house specialists across the nation and overseas offices and a top-down economic perspective from IGIS’ in-house research. 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