The commercial real estate market in the first quarter of 2025 showed distinct differences in recovery across different types of properties. While offices entered a recovery phase, recording stable returns and rising rents, retail properties continued to struggle in both investment returns and rental prices.

According to Remax Korea's analysis of Ministry of Land, Infrastructure and Transport statistics, the national average return on investment for offices in the first quarter was 1.561 TP3T. Conversely, returns for mid- to large-sized commercial properties were 0.911 TP3T, for small commercial properties 0.741 TP3T, and for multi-storey commercial properties 1.101 TP3T. Overall, commercial properties remained below 11 TP3T. Small commercial properties, in particular, recorded the lowest returns among all commercial real estate types.

The rental price index also shows a polarizing trend. While office space continues to rise steadily, commercial space continues to decline. In particular, small commercial space prices fell 0.711 tp3t in the first quarter of 2025 compared to the previous year, a sign of a sluggish business environment.

Source: Ministry of Land, Infrastructure and Transport

Declining self-employed workers, online shopping, and changing consumer trends are taking a toll on small and medium-sized businesses.

Why have commercial market indicators deteriorated? It appears to be a combination of market changes coupled with a decline in the number of self-employed individuals. The number of self-employed individuals in commercial and office buildings is decreasing… The changes hidden in the numbers.

Data: Statistics Korea, Employment Status by Employment Status

According to Statistics Korea, the number of self-employed people in Korea is projected to increase by approximately 51,000 (approximately 0.9p%), from 5.606 million in 2019 to 5.657 million in 2024. However, a closer look reveals a different trend.

During the same period, the number of self-employed individuals with employees decreased by approximately 106,000 (6.9p%), from 1.538 million (2019) to 1.432 million (2024). Conversely, the number of self-employed individuals without employees increased by approximately 157,000 (3.91p3T), from 4.068 million (2019) to 4.225 million (2024).

This can be interpreted as a result of the gradual decline in traditional self-employment models, such as renting a commercial space or office and hiring employees to operate, and the rise of online-based or non-storefront, one-person businesses. While the number of self-employed individuals appears to have recovered on the surface since the COVID-19 pandemic, the actual number of self-employed individuals with employees who require commercial space or offices has not recovered, leading to a continued slump in the commercial sector.

The shift to an online and platform society has transformed demand for commercial properties.

Changes in commercial districts and restructuring consumer trends are cited as key factors driving the slump in small businesses. In addition to the shift in consumption toward hot spots and large commercial districts, the proliferation of online shopping and platform-based, non-face-to-face consumption has weakened demand for small businesses.

Retail and service-oriented commercial spaces, where small business owners thrive, have been hit hard, while oversupply, polarization of commercial districts, and shifting consumer patterns are further diminishing the investment attractiveness of the commercial space market. Conversely, office space continues to see robust growth, fueled by recovering corporate leasing demand and stabilizing vacancy rates.

Investment Strategy: When to Read Office and Commercial Trends

The commercial real estate market is becoming increasingly polarized by type. It's time for an investment strategy centered on offices, and the commercial real estate market needs to closely monitor structural changes and shifts in consumer trends.

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