BMI View: South Korea's commercial real estate sector should remain stable in 2016, benefiting from a positive economic outlook. Demand for space is expected to be underpinned by expansion in the service s sector, higher purchasing power and accelerating growth in online shopping. The slowdown in the Chinese economy poses a risk to the overall performance of the South Korean economy and hence the property market, but on the w hole we believe that the long- term outlook is bright given the country's highly developed retail industry and economic diversification strategies.
Having seen a GDP growth of 2.6% in 2015, South Korea's economic growth is expected to be marginally higher in 2016, with BMI forecasts indicating a rise of 2.8% this year. On average, growth over the next five years is expected to be around 3.2% per annum in real terms. The positive growth anticipated over the medium term is likely to support the commercial real estate market as a whole, although the risks to the outlook for both the economy and the property market are on the downside due to the slowdown in the Chinese economy, which is South Korea's largest trading partner
The capital, Seoul, has a strong commercial real estate market across the board, with significantly higher costs than the other cities that we cover. Seoul's office real estate in particular is expensive, as a result of the large stock of premium-quality space in this regional business hub. In Busan and Daegu, meanwhile, the retail market is notable for its healthy growth, leading to high rents for retail space and growth in opportunities in that sub-sector.
In the office market, demand for space has held up so far in 2016 and higher GDP growth will continue to drive the market. The services sector is set to see positive growth over the next five years, with tertiary services expected to grow by 6.5% in nominal terms over the period 2016-2020. The market has seen the strengthening of new emerging centres and an intensification in decentralisation trends as government-led initiatives, tax incentives and transport improvements give rise to new sub-markets. A combination of lower rental costs and high-quality buildings is causing many companies to relocate. Samsung SDS is one example. Rental values have risen marginally (in USD terms) in 2016, but given recent relocations and increased competition to attract tenants, we could see rental costs coming under pressure in the three main central business district areas. The office markets in Busan and Daegu are both expected to see stable rents over the next 18 months.
The outlook for the South Korean retail real estate market is stable. Tourism and internet retailing are both key drivers in the retail market. The appetite for high-fashion brands remains high and, with consumer spending and incomes both increasing, we can expect retailer demand to hold up well in the medium term. A number of projects are in the development pipeline, which should see the retail offer increase over the next two years. The current development pipeline suggests a total 475,000sq m of space between 2016 and 2018.
We see key opportunities for industrial real estate investors in providing space to serve the country's thriving retail sector, and also in the provision of high-quality warehousing and logistics space for the high-tech industry and exporters. Asset managers' desire to acquire logistics assets has continued so far this year. Supply, however, remains tight, and consequently the market is witnessing an increase in pre-sales as global investors participate in developing and managing assets for sale. A relative lack of transparency and understanding of local practices remains a challenge. The downside risk is particularly higher for the logistics sector and the real estate market, as both could potentially suffer from the slowdown in the Chinese economy and its impact on trade. Nonetheless, with domestic demand likely to remain robust, we can expect the industrial market to do well, and the rental outlook to remain positive.
South Korea is seeing increasing investment from overseas. The country's robust and predictable political system and favourable business environment are attractive to investors. Premium assets in core markets should continue to draw investor attention, while recent trends also indicate an increase in interest in value-add and core-plus assets. Furthermore, the existence of real estate investment trusts in the country provides a way for investors to enter the commercial real estate market at relatively little cost.
The South Korea Real Estate Report features BMI Research's market assessment and independent forecasts of major construction projects in the residential and commercial markets, plus rental prices and yields in major cities. The report critically analyses the prospects for real estate within the broader economic and financial context - both domestic and global - via our econometrically-modelled and clearly explained banking and economic forecasts and follows this through to evaluate the implications for REITs.
BMI's South Korea Real Estate Report provides industry professionals and strategists, sector analysts, business investors, trade associations and regulatory bodies with independent forecasts and competitive intelligence on the real estate industry in South Korea.
- Benchmark BMI's independent real estate industry forecasts for South Korea to test other views - a key input for successful budgeting and strategic business planning in the Korean real estate market.
- Target business opportunities and risks in South Korea through our reviews of latest industry trends, regulatory changes and major deals, projects and investments.
- Assess the activities, strategy and market position of your competitors, partners and clients via our company profiles (inc. SWOTs, KPIs and latest activity).
BMI Industry View
Summary of BMI’s key industry forecasts, views and trend analysis covering real estate and construction, regulatory changes, major investments and projects and significant national and multinational company developments.
Industry SWOT Analysis
Analysis of the major Strengths, Weaknesses, Opportunities and Threats within the real estate sector and within the broader political, financial, economic and business environment.
Industry Forecasts Outlook
Historic data series (2010-2013) and forecasts to end-2019 for the domestic real estate industry and for the local and global finance industry.
- Real Estate: Office, retail and industrial real estate yields for all major cities (%); short term forecasts on minimum and maximum real estate rental prices by sub-sector (USD per square metre and local currency per square metre).
- Construction: Industry value (USDbn); contribution to GDP (%); employment (‘000); real growth (%).
- economy: Economic growth (%); nominal GDP (USDbn); unemployment (%); interest rates (%); exchange rate (against USD).
BMI’s Real Estate Risk Reward Index
BMI’s Risk Reward Indices provide investors (real estate vendors, construction companies and financial investors) looking for opportunities in the region with a clear country comparative assessment of a market’s risks and potential rewards. Each of the country markets are scored using a sophisticated model that includes more than 40 industry, economic and demographic data points to provide an indices of highest to lowest appeal to investors, with each position explained.
Overview of the real estate sector, including analysis of existing/planned real estate developments and emerging industry trends in the office, industrial and commercial sectors
Features detailed city-level data and analysis on rental prices, yields, contract terms and real estate availability with separate chapters covering the office, retail and industrial sub-sectors.
Examines the competitive positioning and short- to medium-term business strategies of key industry players. Strategy is examined within the context of BMI’s industry forecasts, our macroeconomic views and our understanding of the wider competitive landscape to generate Company SWOT analyses. The latest financial and operating statistics and key company developments are also incorporated within the company profiles, enabling a full evaluation of recent company performance and future growth prospects.
*Company profiles are not available for every country. Those reports instead contain information on the current activities of prominent companies operating in the market.