This article was published on September 22, 2014 at 10:23 The Bell paid pageThis is an article that appeared in .
The domestic office building industry is experiencing a tectonic shift. As competition to secure tenants is intensifying due to oversupply, the polarization between large buildings and small and medium-sized buildings is deepening, with demand for small old buildings plummeting. The successive construction of new buildings and falling rents are triggering a chain movement of demand, breaking down the walls of the rental industry that had been entrenched in each downtown area of Seoul.
Price distortion is also serious. Despite the oversupply, prices of major buildings are soaring, a strange phenomenon continuing. Rent is also showing a gradual upward curve in various statistical indicators. There are many difficult aspects to using the market logic of supply and demand.
It is pointed out that statistical indicators that are far from reality are further expanding market opacity. Many point out that the reality of having to rely on building owners and landlords for key information such as vacancy rate and rent and the limitations of poor sampling are distorting information and becoming an obstacle to revitalizing the market.
Capital market media Money Today The Bell has prepared an opportunity to look inside the industry with experienced experts in the commercial real estate market. The focus was on diagnosing the current state of the office building market and finding solutions to revitalize the market.
◇Attendees : Genstar CEO Yoon Yeo-sin, Yoon Won-seop, managing director of Cushman & Wakefield Korea, Urban Asset CEO Jeong Seong-jin, Remax Korea director Jang Jin-taek, and Lim Chae-wook, Genstar managing director.
 | | The domestic office building industry is experiencing a tectonic shift. Capital market media The Bell held a roundtable meeting with industry experts and took the time to explore current issues in the office building market and ways to revitalize it. (From the bottom left, Urban Asset CEO Jeong Seong-jin, Cushman & Wakefield Korea Managing Director Yoon Won-seop, Money Today Deputy General Manager Gil Jin-hong of The Bell, Genstar CEO Yoon Yeo-jin, Jang Jin-taek, Remax Korea director, and Lim Chae-wook, Genstar managing director.) |
|
◇ Weak rental market in downtown Seoul... Serious real vacancy rate
society = There is a lot of talk about the office building market being difficult. What is the actual vacancy rate trend?
Yeon Goddess = In general, the vacancy rate is high. According to Genstar's internal data, the vacancy rate in major cities in Seoul is 5% in the Gangnam area, 8~10% in the downtown area, and 5~6% in the Yeouido area. This is data from a survey focusing on prime-class buildings.
However, in reality, the vacancy rate is higher than this. The reason the vacancy rate is considered high is because the future vacancy rate is also taken into consideration. Everyone who manages assets knows this. I also consider the approximate vacancy rate after the next quarter or half year. Therefore, there may be some differences from information known to the outside world. The vacancy rates in most reports are based on data from 2 to 3 months ago.
For this reason, many companies and expert groups request briefings on market trends. I want to know the vacancy rate trend for the second half of this year or next year, not just past data. Currently, the vacancy rate in prime-class buildings has decreased significantly. However, in the case of class B and C buildings, the vacancy rate actually increased.
Wonseop Yoon = That's a good point. The vacancy rate in reports published by various research companies is different from the vacancy rate identified in the industry. This is because the samples are different for each company. It can be said that the larger the sample size, the smaller the error. Genstar has a relatively large number of samples. For foreign companies, the sample is usually smaller than that. The sample target tends to be biased toward prime or A class.
As a result, the vacancy rate seen by the general public lags behind the real market. However, for those in the field, the vacancy rate of office buildings that will be released on the market in the future is important. Estimate the vacancy rate after 3 months, 6 months, or 1 year and proceed with marketing.
The standards for calculating the vacancy rate are also different. In the case of foreign companies, lease contracts are concluded one year in advance. We view the moment of actual occupancy by the tenant as the standard for resolving vacancy. Even if a contract has been signed, some units are often left vacant until occupancy.
Overall, vacancies in prime-class buildings in downtown Seoul have decreased. Looking at future supply trends, it is expected that the vacancy rate will inevitably rise, especially in the Seoul metropolitan area. The increase in the vacancy rate in the Yeouido area is believed to be due to differences in the number of samples. The basic sample size in the Yeouido area is small. When two or three large buildings are built, the vacancy rate seems to be enormous. However, in absolute terms, this is not the case.
Yeon Goddess = That's right. Some manage statistics separately when adding and subtracting the vacancy rates of the IFC Building in Yeouido and the Federation of Korean Industries Hall. The same goes for other regions. When new buildings such as Seoul Square and Center One are included, the vacancy rate differs by 2 to 3%p. Therefore, in the field, it is often unclear which data to refer to.
Seongjin Jeong = This discussion seems to partly reflect the sense of crisis in the market. As mentioned earlier, we have been taking a backward approach to the rental market. Then, as global companies landed in Korea, advanced techniques were introduced. As foreign asset management companies and funds invested, professional management companies such as PM and FM came in. As a result, the trend of change is steep.
 | | Won-seop Yoon, managing director of Cushman & Wakefield Korea (open side), is speaking about the criteria for classifying prime-class buildings. (On the left is Seong-jin Jeong, CEO of Urban Asset.) |
|
◇Small and medium-sized buildings hit hard… Synchronization phenomenon is broken
Seongjin Jeong = The definition of a prime-class building is still vague. In general, buildings with a total floor area of 30,000 m2 or more are classified as prime class. According to our research, there are about 290 prime-class buildings in Seoul. They are distributed as follows: 90 in the downtown area, 60 in the Gangnam area, 40 in the Yeouido area, and 100 in other areas. Many are self-owned. There are not many cases of renting. There is fierce competition for this.
Wonseop Yoon = There are many differing opinions on the criteria for classifying prime-class buildings. In particular, there are no exact standards yet in Korea. This is because there are many private holders, especially large corporations, and information is blocked. In the United States, relevant associations set standards for size classification. The question I hear most often from foreign countries is whether there are prime or A-class buildings in Korea. Also, many people wonder what the classification criteria are.
Seongjin Jeong = I think the most important thing in classifying a prime building is the personality of the tenant. The rating varies depending on whether the desired company has leased it or not. In the case of Tower Palace, the social status and income level of the residents are high, so their own community is formed. Residents of Seocho, Banpo and Raemian, where the residential environment is poor, also have a strong influence. It is necessary to approach the definition of a prime-class building from this perspective.
Jang Jin-taek = Many companies' vacancy rate surveys tend to focus on prime-class buildings. As a result, it is difficult to convey accurate market information. The actual vacancy rate felt is close to 10% in the Gangnam area and 20% in Yeouido. In particular, in the case of small and medium-sized buildings, it increased to 30~40%. As the information collection target is biased to one side, the market is becoming distorted. However, vacancies in prime office buildings have clearly decreased.
As a result, the polarization between prime buildings and small and medium-sized buildings has become significantly worse. Also, each prime building has a different situation. In the past, the vacancy rates of buildings in neighboring areas often moved together, but now the differences are significant. Polarization is occurring in every building. There is also an impact of the economic downturn. In particular, from a demand perspective, the domestic economy is more important than anything else. We are not in an era where domestic demand is growing explosively like it used to be. At the same time, the lessee became A. This phenomenon is noticeable in small and medium-sized buildings.
Chaewook Lim = In a similar context, the reality is that there is still a lot of supply. Competition is bound to be fierce. As supply is high and demand is low, there has been a ‘rent-free competition’. This resulted in further increasing the position of prime-class buildings. An environment has been created where tenants who were previously in B-class buildings will move to A-class or prime buildings. In fact, the situation has improved greatly, with vacancies in prime and A-class buildings decreasing.
On the other hand, small and medium-sized buildings became more difficult as they lost their tenants. Ultimately, the polarization of the market can be seen to have resulted from the serial movement of tenants. It is difficult to view this as creating new demand.
→Continued in Part 2 of the discussion.
Original link: http://www.thebell.co.kr/front/free/contents/news/article_view.asp?key=201409220100031240001939
