Seoul 2023 prime logistics demand breaches levels from the past two years

Total net absorption hit over 1.1 million pyeong throughout the year.

The net industrial absorption of overall Seoul Capital Area (SCA) continued to be very solid at 278,900 pyeong in 4Q23. 

According to JLL, the total net absorption in 2023 reached 1,100,300 pyeong, an increase of 131% compared to 2022, indicating a highly active leasing market for 2023. The total net absorption in 2023 surpassed the combined annual volumes of both 2021 and 2022.

Here’s more from JLL:

The net absorption across all submarkets was positive, with the South submarket recording the largest net absorption in the quarter. Various tenants, including 3PL, consumer electronics, and e-commerce, recently relocated to the South. In 2023, the West witnessed the largest net absorption, with e-commerce occupying the largest proportion of new space.

Vacancy rate remains the same despite high supply

In 4Q23, 16 new centres were completed in the SCA market. Many centres, which had their completions delayed, have finally completed construction before the new year. New supply came online in all five submarkets. One centre was completed in the Central, one in the North, five in the South, eight in the South-east and one in the West.

The vacancy rate in the SCA market stood at 13.1%, almost the same as the previous quarter. Despite a large supply influx in the quarter, the vacancy rate stayed flat on the back of brisk leasing activity in recent completions. The vacancy rates rose in the Central and the South-east, while vacancies fell in the South and the West. The vacancy rate in the North remained unchanged at 0%.

Annual investment volume declines due to lack of liquidity

The average monthly net effective rent in the SCA was about KRW 30,565, an increase of 0.4% q-o-q. While rents in the Central and West submarkets rose, those in the North and South fell slightly. The South-east’s rent stayed virtually unchanged q-o-q.

The investment volume in 4Q23 was approximately KRW 1.1 trillion, a 15% decrease q-o-q and a 53% increase y-o-y. The investment volume in 2023 was approximately KRW 6.4 trillion, a 3% decline compared to the previous year. The impact of high interest rates and low liquidity was evident in 2023. The most prominent transaction in 4Q23 was the closing of Logishub Incheon.

Outlook: A cautious approach expected in the 2024 investment market

Due to the prevailing high interest rates and challenges in the construction market, the supply market is likely to remain sluggish. Limited new ground breakings and completion delays for centres already under construction are anticipated to continue. Nevertheless, with many projects under construction, large-scale supply is expected in 2024.

Although investors are expected to continue to take a cautious attitude in the investment market, it is anticipated that there will be many investors in the market looking for opportunities to purchase core assets at distressed prices. The investment market is expected to experience mixed trends depending on the liquidity situation as well as the financing market.

Note: Seoul Industrial refers to Seoul Capital Area's prime logistics market.