RCA Insights

Seoul Sees Swell of Office Deals and Liquidity

By on October 1st, 2018

Seoul has climbed the ranks to become the second largest office market in Asia Pacific and liquidity in the South Korean capital keeps growing. Investors spent $10.4 billion on office assets in Seoul in the 12 months through June 2018, making its office market second only to Hong Kong.

Seoul’s liquidity has been rising since early 2016 when it became the second-most liquid market in Asia, according to RCA’s Capital Liquidity Scores. It ranks behind only Tokyo in terms of capital liquidity. All-time high investment volume has been one factor in this improvement but a wider range of investors has also driven up the liquidity score.

Investment sentiment in South Korea started to improve in 2015 when the country experienced the most recent residential boom, characterized by fast-growing house prices and low interest rates. The Bank of Korea started cutting interest rates in 2014 and by June 2016 the rate was down to 1.25%. These cheap lending conditions spurred all investor groups, with institutional investors particularly hungry for deals.

A watershed deal occurred in November 2016 when AIG Global RE sold the IFC complex for $2.2 billion to a joint venture between Brookfield AM and CIC. As well as being the largest South Korean deal on record it was the first time a Chinese investor spent more than $100 million on a deal in the country.

1809 Seoul net acquisition quad MAIN_150-01

Domestic South Korean institutional groups, private real estate owners and users have started to sell more and this has pushed the market to an all-time high. Investors such as Hana Financial Group, DAOR E&C, Samsung Life Insurance, Samsung Group, Vestas Investment Management and KORAMCO have been the largest sellers.

These players’ willingness to trade assets is reinforced by the potential for an interest rate hike, which the central bank may employ to rein in exuberance in the residential market. A sustained period of growing prices is also enticing investors to cash out and deploy capital in new real estate opportunities both at home and overseas. Seoul registered the fifth fastest price growth of major global markets in Q2’18, with commercial property prices rising by 7.8% year-over-year, according to RCA CPPI.

The next edition of the RCA Capital Liquidity Scores report will be released October 8. To find out more about becoming an RCA client, contact us.