Foreigners rush to sell buildings

A large banner saying “for rent” in Korean with a cell phone number is on an office building in this undated file photo. Due to poor returns on their investment in office buildings, foreign investors are rushing to sell their properties. (Photo : The Korea Times)

An increasing number of foreign landlords of office buildings in Seoul are selling their properties amid a prolonged slowdown in the market.

According to market sources, during the first half of the year no foreign investors signed contracts to buy office buildings or mega-sized commercial buildings with total floor areas of 3,300 square meters or larger, although 21 buildings containing such space were put up for auction.

Foreign investors bought at least one or two large-sized buildings in each quarter between 2010 and 2011. Now they are now trying to sell instead because returns have dropped sharply.

In the first quarter of the year, German investment company DECA sold Central Tower in Myeongdong, Seoul to a local firm, REITS (Real Estate Investment Trusts) for 110 billion won. Global investment firm Max CI also sold its Asian One Building in Yeouido to Hyundai Capital and Hyundai Card.

In the second quarter, Standard Chartered Bank Korea sold its information technology center building in Jamsil to a local property manager.

Market insiders said many foreign landlords plan to sell their property because the market is in a slump and returns have consequently dropped.

“It’s true that U.S. and Europe-based investment firms have been selling their property here as they were hit by the global financial crisis,” said Hong Sun-man, an official from Shinyoung Asset, a real estate consulting firm. “But local investment firms and individual buyers have bought those buildings put up for auction because they believe the properties are good investment opportunities.”

Experts point out that the drop in earnings is largely attributable to the sluggish property market and simultaneous urban redevelopment projects, which has led to new buildings popping up in the past few years and intensified competition among landlords.

The supply of office space has been particularly abundant in the central business district that encompasses areas near Gwanghwamun Station and Euljiro 1-ga Station. The vacancy rate for the central business district’s prime office space was 18 percent in the first quarter, compared to Yeouido’s 5.1 percent and Gangnam’s 1.5 percent, according to the Korean branch of global real estate service firm Cushman & Wakefield.

According to the Ministry of Land, Transport and Maritime Affairs, the return rate for investment in office buildings dropped to 6.59 percent during the first half of this year from 13.74 percent in 2008.

The selling spree of foreign investors is expected to continue for a while.

Hewlett Packard Korea chose Shinyoung Securities’ consortium as the preferred bidder for the sale of its HP Building in Yeouido, and JR AMC has applied to the land ministry for REITS management in trust for Chungmuro Tower in Chungmuro, currently owned by German lender Commerzbank.

“The trading volume for office buildings stood at 5.4 trillion won last year,” Hong from Shinyoung Asset said. “The value should be similar this year as the trading volume in the first half of the year stood at 1.8 trillion won and property worth about 5 trillion won has been put up for auction at the moment.” <The Korea Times/Kim Tae-jong>

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