"Expectations for Interest Rate Cuts..." Outlook for Commercial Real Estate in Q2 Examined [fnMarketWatch]

[Financial News]  Due to expectations for interest rate cuts, the domestic commercial real estate in Q2 has shown clear asset polarization. 
Koramco Asset Management's R&S Department (Research & Strategy) published the '2025 Q2 Commercial Real Estate Market Outlook Report: Resilience Amid Shifting Fundamentals' on the 29th, presenting market trend analysis and outlook by major asset types.
Koramco projected that the Q2 commercial real estate market is showing a gradual recovery trend due to expectations of interest rate cuts and the restructuring of investment assets, but the recovery intensity is expected to vary significantly depending on changes in the fundamental conditions of each asset.
In the office market, a large-scale pre-purchase transaction of about 2.9 trillion won in Magok was made in Q1, recording a total transaction volume of 6 trillion won, an increase of about 122% compared to the same period last year. However, the large-scale supply expansion has led to an increase in the overall office vacancy rate, with the vacancy rate in Seoul's business district increasing by 2.3%p compared to the previous quarter, reaching 7.2%. As a result, the actual rental growth rate also recorded 0%, clearly slowing down the rental growth trend. Small and medium-sized offices also maintain a high vacancy rate.
However, with the delay in the start of many office development projects, new supply is expected to be limited until 2027. Accordingly, continuous growth of emerging business district offices in areas such as Pangyo, Magok, and Seongsu is predicted.
The logistics center market is showing a full-fledged recovery trend, with transaction volume increasing by 70% compared to the same period last year, reaching 1.4 trillion won. In particular, transactions are resuming centering on newly constructed large assets with a total floor area of over 30,000 pyeong in the metropolitan area, with 8 out of 9 transaction cases being complex and ambient assets. In addition, the supply area of new logistics centers in Q1 was only about 40,000 pyeong, a decrease of 84% compared to the same period last year. New permits are also turning to a decreasing trend, and supply is rapidly declining.
The outlook for the hotel market is bright. Supported by the increase in foreign tourists visiting from China, Japan, Taiwan, the United States, etc., the stable operational performance improvement centered in Seoul is expected to continue. In addition, the entry of global luxury brands such as Mercure Hotel, Ambassador Pullman, and Rosewood is also planned, increasing expectations for the qualitative improvement of hotel assets. Furthermore, attempts to maximize profitability by remodeling existing retail facilities or office buildings into hotels are emerging, further demonstrating the expectations for the hotel market.
The data center market is expected to experience long-term growth due to the growth of the AI industry and the expansion of global cloud operators into the domestic market. Although asset management companies and global data center operators are competitively pursuing data center development, the lack of available development sites in key areas and difficulties in securing power are expected to continue, further highlighting the scarcity of assets in the metropolitan area. According to the report, about 23 new data centers are expected to be supplied in the metropolitan area, including southwestern Seoul, Incheon, Goyang, and Yongin, by 2027.
Rental housing products are emerging as a new investment destination as the demand for monthly rent increases due to the interest rate cut trend and the government's loan regulations, and landlords' preference for monthly rent expands. Recent foreign investors' investments in domestic rental housing products reflect this market situation, as the conversion of jeonse to monthly rent accelerates, and rental prices rise, establishing a stable income base. In addition, the trend of activating residential REITs and the regulation of living accommodation facilities are also having a positive impact on the rental housing product market.
Kim Yeol-mae, head of Koramco Asset Management's R&S Department, stated, "The Q2 commercial real estate market is a time to adjust strategies according to changes in medium- to long-term profitability and investment conditions rather than short-term demand," and emphasized, "Understanding and selective approach to the structural changes in major sectors such as offices, logistics, hotels, and data centers are important."
Meanwhile, Koramco recently declared 'Vision 2030,' emphasizing an investor-centered management philosophy and is promoting changes across management, such as organizational restructuring to enhance expertise and efficiency. They plan to continuously analyze changes and market outlooks by asset group through quarterly market reports to provide practical insights for investors to make more rational decisions. 


kakim@fnnews.com Kyung-ah Kim Reporter