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South Korea Real Estate Report Q1 2014 - New Market Research Report

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2014-01-05 03:13:36 - Fast Market Research recommends "South Korea Real Estate Report Q1 2014" from Business Monitor International, now available

We believe the South Korean real estate sector will remain stable over our medium-term forecast period, with increasing supply adding to the sense that it is a 'buyer's market' at the moment. After a troubling few years, we are seeing some signs of economic improvement, and note that the Bank of Korea's neutral monetary policy will boost stability in the sector. We point to efforts to rebalance the economy towards higher value manufacturing as having a long-term impact on the industrial sub-sector. The South Korean commercial real estate sector is dominated by real estate investment trusts (REITs), indicating its developed nature. REIT activity is only likely to increase, and, in tandem, so is the extent to which South Korean real

estate concerns are active overseas, notably in the UK and the US, but also elsewhere in Asia.

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South Korea's traditionally strong manufacturing sector has been buffeted by global economic headwinds over the past few years, as it is export-dominated. We are broadly positive towards government efforts to rebalance the industrial sector towards more value-added industries, eg innovative IT products and bio-science, and believe this will have long-term upside for the industrial real estate sector.

After a challenging few years, the South Korean consumer story is beginning to look up, and this will have an impact on the country's retail sector and thus the retail real estate segment. As households remain highly indebted, we do not see a quick return to growth in retail, but rather feel that over the longer term, neutral monetary policy and an increasingly healthy economy will contribute to an improving outlook for retail real estate. South Korea is highly internet-literate, and, although online retail could threaten traditional retail outlets, we note the existence of extremely modern, high-concept retail spaces in the country.

We likewise now have a fairly positive outlook for the office segment, boosted by future economic growth in South Korea's strategic location in East Asia. Although vacancy rates will remain an issue in some areas, over the short term at least, we do see healthy demand in key business areas.

On a city-by-city basis, we highlight Seoul, with its three globally famous business districts, as remaining the main driver of office real estate in the country, charging the highest rental rates by a significant margin. The capital will also remain the key driver of growth in the retail space, because of its size and cultural importance. Meanwhile, we see a rebalancing of the traditional manufacturing city of Daegu and the port city of Busan towards more high-tech, value-added industry, as illustrating the long-term new direction of industrial real estate.

Downside to our fairly optimistic outlook for South Korean real estate in general comes from our forecasts for a still-slow economic recovery (we are forecasting a 2.5% increase in real GDP in 2013, followed by 3% in 2014), combined with the long-term impact of a slowdown in Chinese growth, which could have a significant impact on this export-oriented economy.

Recent Developments

* In October 2013 ground was broken on the Chungju Megapolis project. The 1.8mn square metre industrial complex will host industries including IT, biotechnology and eco-friendly sectors.
* In September the Canada Pension Plan Investment Board acquired a 50% interest in Samsung SRA Private Real Estate Trust No. 4, which owns the Seoul property that will become Samsung SDS's headquarters.
* In the same month it was announced that the world's sixth highest tower is to be built outside Seoul. The 'invisible tower' will be 1,476 feet high, and is set to be completed in 2014.
* In August 2013 the 343,000 square feet Busan Premium Outlets, run by a joint venture of Shinsegae Group and Simon Property Group, opened in Busan.

Key BMI Forecasts

* We see office rents remaining stable in 2014, ranging from a minimum of KRW8,719 per square metre per month in Daegu to KRW39,000 in Seoul. We see Seoul retaining the highest minimum and maximum rates of the three cities we survey, due to its status as capital and as a global financial hub.
* In both the office and retail sectors we see yields remaining stable over the medium-term forecast period to 2017, with the exception of a dip for Busan in 2013 and 2014, before the city makes a recovery to average 5-7% over the rest of the forecast period.
* In retail real estate we are forecasting flat rental rates in the short term for Seoul and Daegu, with a modest rise in Busan of 2%. Seoul will retain the highest minimum and maximum rates, and we highlight the significant gap between minimum and maximum levels in all cities we cover, highlighting the diversified natures of the retail real estate sector.
* In the industrial sector we forecast no change in rental rates over the short term, and note that there is much less divergence between the three cities than for the other two sub-sectors. We see rates going from a minimum of KRW5,625 in Daegu to a maximum of KRW18,313 in Seoul.
* Likewise, yields are much closer together in all three cities, and are forecast to remain static over the forecast period, ranging from 5% to 7%.

About Business Monitor International

Business Monitor International (BMI) offers a comprehensive range of products and services designed to help senior executives, analysts and researchers assess and better manage operating risks, and exploit business opportunities, across 175 markets. BMI offers three main areas of expertise: Country Risk BMI's country risk and macroeconomic forecast portfolio includes weekly financial market reports, monthly regional Monitors, and in-depth quarterly Business Forecast Reports. Industry Analysis BMI covers a total of 17 industry verticals through a portfolio of services, including in-depth quarterly Country Forecast Reports. View more research from Business Monitor International at

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