Interest rate fluctuations are one of the major variables that determine the flow of the real estate market.
Since September of this year, the United States has started to lower its benchmark interest rate, which had been frozen for over a year, and the Bank of Korea has also
The benchmark interest rate was lowered twice from 3.50% to 3.00%.
However, compared to the long-term ultra-low interest rates of 1% or less before 2022, the current interest rates are at a mid-interest rate level, and the volume of commercial real estate transactions has also decreased significantly since 2022.
2025 starts with expectations of a rate cut, but in Korea, the rate cut will be smaller than in the US.
It seems limited. It is expected to be difficult to return to the low interest rate era before 2022.
It is expected that high interest rates will be maintained for the time being.
Nevertheless, the decline from high to medium interest rates is a positive signal.
The commercial real estate market is expected to follow a gentle upward curve in 2025.
Let's take a look at the commercial real estate market outlook for 2025 by segment.
Building and property sales market
As the real yield decrease due to high interest rates is lowered to medium interest rates, yields will recover to some extent, and the burden of secured loan interest rates on prospective buyers will be reduced, so the transaction volume in 2024 is expected to increase, and in particular, transactions of small and medium-sized buildings are expected to be more active than those of large buildings.
Logistics, warehouse sales market
As the vacancy rate increased due to rapid supply, rent adjustments became inevitable, leading to a decline in overall profitability. However, as rents stabilized and sales prices were also adjusted, profitability was also affected, and the transaction market maintained a consolidation trend. However, the room temperature logistics market is expected to drive transactions more than the low temperature market.
Accommodation sales market
As the number of foreign tourists recovers to pre-COVID-19 levels and accommodation operation performance improves, transactions for operating profit are expected to increase. In particular, accommodation transactions in major areas such as Seoul, Busan, Gyeonggi, and Jeju are expected to be particularly active, which will also be an attractive investment destination for foreign investors.
Office Rental Market
The office rental market, which has been experiencing a steep increase in rent since COVID-19 and a vacancy rate that is lower than the natural vacancy rate, is seeing Magok District (MBD) join Gangnam District (GBD), Downtown District (CBD), and Yeouido District (YBD) in the full-scale rental market. However, Magok District (MBD) needs to be watched a little more, and it is expected that quality tenants will sign rental contracts primarily for large buildings with pleasant environments, while small and medium-sized buildings are expected to be at risk of an increase in vacancy rates.
Commercial rental market
In a situation where the overall economic downturn is prolonged and demand for starting a business, relocation, and expansion are all shrinking, the market is expected to be led by franchise businesses, foreigners residing in Korea, or businesses that wish to have foreign brands enter Korea, rather than general self-employed business owners lease commercial properties.
Other markets
Senior Housing Facilities: As we enter a full-fledged aging society, it is expected that rental housing services for the elderly, senior houses, will continue to be supplied near large hospitals, nursing hospitals, or in urban areas.
Single-person housing: Demand for small housing for young people, workers, and students is expected to increase, and market supply is expected through changes in the use of existing buildings (accommodation facilities).
Rural Shelter: The rural shelter, which is scheduled to be fully implemented, is expected to contribute greatly to the revitalization of agricultural land transactions.
2025 is expected to be a year of greater political, social, and economic uncertainty than any other year, and factors such as interest rate fluctuations, foreign exchange, and construction costs will have a significant impact on the real estate market and transactions. This will be a year in which real estate market participants must closely examine these changes and make careful decisions.
