Construction: Construction 107: Examining Commercial Real Estate

The author is an analyst at NH Investment & Securities. He can be reached at [email protected]. – Ed.

Building 107: Investigation of commercial properties (medium / large shopping centers)

In 2020, the ROI for medium and large malls was 5.0% (-1.1% year over year). The vacancy rates are rising and rents are falling, influenced by structural changes caused by Covid-19.

Medium / large malls with difficulty

Medium / large shopping centers are multi-purpose buildings with more than three floors or a total area of ​​more than 330.6 m2. In particular, we would like to focus on vacancy rates and rents (especially monthly rents) in Seoul and Gyeonggi as well as in other large metropolises.

Vacancy rates have risen to their highest level in the last five years and have increased quarterly since the fourth quarter of 19, when Covid-19 first hit the market. From the 4th quarter of 20 onwards, the nationwide vacancy rate was 12.7% (+ 0.3% p qq, + 1.0% p yy; by region: Seoul 8.8%, Gyeonggi 9.6% and five other metropolises 14.9%).

On the other hand, rents have fallen to the lowest level in the last five years. Average rent has declined 17% since the fourth quarter of 2015 and decreased 1.5% per quarter since the Covid-19 outbreak. From the 4th quarter of 20, the nationwide rent per 3.3 m2 was 87,000 W (-0.9% qq, -5.1% yy; Seoul 179,000 W, Gyeonggi 88,000 W and five other metropolises 71,000 W).

The vacancy rates in Myeongdong and Itaewon reached 22.3% (+ 12.4% pqq) and 26.7% (+ 1.8% pqq), the highest values ​​in Seoul. In 2020, the ROI for the Myeongdong and Itaewon areas decreased by an average of 2.1% p to 4.1% and 5.1%, respectively. As a reference, the ROI for Seoul fell in most parts of the city by more than 1.5% p.

Note: 1) The total area corresponds to the total area of ​​the building on site. 2) The ROI is the total return on invested capital, calculated from the sum of income from building operations (e.g. rents) and the capitalization rate from the rise / fall in property prices

Major construction / real estate news was released last week

It was announced that Korea Housing & Urban Guarantee Corporation (HUG) plans to fully implement the plan to improve the pre-sale price verification system from February 22nd. In detail: 1) 85 ~ 90% of the surrounding market price is the upper limit for pre-sale prices; 2) a comparative business location is selected according to the location and characteristics of the target construction area; and 3) the evaluation criteria for the advance booking price must be clearly stated. With this improvement, the advance booking prices in the five metropolitan areas (excluding Seoul) and parts of the metropolitan area of ​​Seoul and Gyeonggi are expected to increase and reduce the gap to surrounding market prices. Presale companies should see an improvement in profitability, which in turn leads to an increase in the supply of housing. Uncertainties about valuing prices before the sale should decrease.