Local Capital Active in Investing to Gangnam Office Market… and it will continue
19 Apr, 2007, Gangnam, South Korea
The average occupancy cost of major office markets in 4Q 2006 stood at the same level as 3Q 2006. The average net occupancy cost in Gangnam achieved at KRW 216,849 per pyung maintaining the highest price out of the main business districts.
The cost of office rent in Prime and A Grade buildings in Gangnam, compared to the same time last year, increased by 3.82% year-on-year, the highest compared to 2.59% and 2.34% for CBD and YBD, respectively. C&W forecast's that the net occupancy cost in Gangnam district will increase significantly from the later half of 2007 due to the lack of availability of office space and continued strong demand from local and international occupiers.
The vacancy rate in Gangnam, as at the end of 4th Quarter 2006, has continued to drop due to limited supply of office space in the market and shows the lowest vacancy level compared to other office districts. This is expected to continue.
With strong continued positive net absorption expected, C&W forecasts that the average occupancy cost in Gangnam will increase upwards of 5% during 2007 with significant increases expected from 2008 onwards, while the vacancy is expected to fluctuate in the 0.75%~1.5% range. This vacancy will be represented as "pockets" of space with contiguous floor office space a rarity.
Given the tight nature of the office leasing market and it?s positioning for significant rental increases in the coming years, there is significant competition between local and foreign investment firms on acquisition opportunities. This coupled with a number of large occupiers looking to acquire headquarter premises within the market with only continue to increase the level of competition. Local firms are well placed to compete with foreign investors given their response and approval process is in most instances more streamlined.
For instance, LaSalle Tower located on the crossroads of Eonjuro at Yeoksam, Gangnam, a Grade A building, initially being developed by a foreign investment company, was purchased recently by a local asset management company for investment purposes. "This is an astute acquisition. Given the building is under construction and willbe completed at the end of 2007, it is well placed to take advantage of the limited leasing availability for occupiers in the market, especially the Gangnam market" according to Sebastian Skiff, Managing Director for Cushman& Wakefield?s Korea office, the joint leasing agent.