The South Korean commercial real estate market is expected to show a stable trend in 2025 due to improved investment sentiment following expectations of interest rate cuts.
JLL (Jones Lang LaSalle) Korea, a global commercial real estate services company, announced on the 20th that it has published a report titled "Commercial Real Estate Market: 2024 Recap and Horizon for 2025 (Fight, Flight, or Freeze)."
According to the report, the South Korean commercial real estate market is projected to show a stable trend in 2025. This expectation is attributed to the anticipated start of interest rate cuts in major economies and the Bank of Korea's potential for additional interest rate reductions, which are expected to positively impact the real estate market.
It is anticipated that large capital will be injected into the real estate market, as the denominator effect from interest rate cuts will ease and demand for real estate portfolio rebalancing will decline. This is expected to lead to liability financing and expanded investment opportunities with higher expected returns. The price adjustments seen over the last few years appear to be concluding, and early signs of rising real estate values are being observed.
By institutional sector, the office market in Seoul, counter to the global market, is expected to maintain robust performances due to active leasing activities and a supply-constrained market environment. The influx of foreign capital is also expected to result in solid investment scale.
In the logistics sector, as price adjustments finish, a number of core assets are expected to emerge, and the concerns over oversupply are anticipated to ease, thereby improving investment sentiment. While the retail sector could benefit as part of a portfolio diversification strategy, full recovery of investment sentiment is expected to take considerable time.
Additionally, in 2025, diversification of investment into "new economy" sectors such as data centers, co-living, and senior housing is expected to become prominent. In particular, the demand for data centers is anticipated to increase due to the artificial intelligence (AI) boom and rising demand for cloud services, while growth in the co-living market driven by demographic changes is expected to provide new investment opportunities.
Shim Hye-won, head of research at JLL Korea, said, "In a rapidly changing market, investors are advised to maintain an objective stance while pursuing portfolio stability and growth simultaneously," highlighting the need to review various sectors to appropriately allocate assets.
Meanwhile, the global economy displayed poor performance in 2024 due to concerns over inflation, geopolitical conflicts, and potential recession risks. However, the South Korean commercial real estate market is reported to have shown strong resilience amid this global uncertainty.
According to JLL's analysis, the South Korean commercial real estate market showed signs of recovery in 2024, with increased transaction volumes in most sectors excluding logistics. Notably, in the office sector, significant transactions were completed, including ▲Acreplace (approximately 792 billion won), ▲The Asset (1.1 trillion won), and ▲Donuimun D Tower (895 billion won).
In terms of investment patterns, the proportion of small to medium-sized transactions, which have relatively lower funding burdens, has increased compared to 2023. In the context of high rents and supply restrictions, strategic investors' activities aiming to secure long-term office space have become prominent. Additionally, there has been an increase in cases where assets are acquired through sponsor REITs for asset securitization purposes. For example, transactions involving Hanwha REIT's Janggyo Building and Samsung FN REITs' Samsung Fire & Marine Insurance's Pangyo headquarters took place.
The hotel and retail sectors also showed improvements in investment sentiment as they recovered from the impacts of the COVID-19 pandemic. In particular, demand for luxury hotels, such as the Conrad Hotel, has surged, leading to an expansion in transaction volumes. Although the transaction amounts in the retail sector also saw some improvement, investment sentiment remains weak.
In contrast, the logistics sector saw domestic investors shifting their focus to the office market, leading to a limited pool of buyers. While overseas investors tended to increase their portfolio share in logistics centers, the overall investment scale in logistics decreased compared to the previous year.