Commercial property joins in the rebound

The housing market isn’t the only sector that seems to have picked up recently. Several government real estate measures since last year have helped thaw the commercial property market as well.

I’Park Avenue is a commercial mall in the second Wirye New Town in southeastern Seoul. Seventy-three of the mall’s 91 stores were sold within a month of the opening of pre-construction sales. At the first Wirye New Town, which put up 153 spaces for presale in September, all were sold within two months.

“There was a lot of interest, especially in stores with good locations, even before sales started,” said Choi Soon-woong, an executive at NeoValue, a real estate development and investment consulting company that managed the sale of commercial spaces at Wirye New Town. “Several investors signed up for three to five stores at once.”

Such trends in commercial real estate have been seen elsewhere recently, especially in new residential neighborhoods. In some cases, additional premiums are being charged for commercial properties in new apartment complexes that are exceptionally popular.

H-Street, a commercial property in Munjeong-dong, southeastern Seoul, is being developed by Hyundai E&C. It started accepting sales contracts for 156 stores in December and all were sold within three months.

“To complete presales of stores of a new commercial development in less than three months is unusual even when the real estate market is active,” said Seon Jong-pil, head of Sangga News Radar, a real estate consultant and information service.

I’Park Avenue in Wirye New Town is also selling stores at a premium. Buyers are shelling out an additional 30 million won ($28,000) to 80 million won above the presale prices.

Currently, a 50-square-meter (538-square-foot) store on the first floor is being sold for 50 million won more than the asking price. At the first Wirye New Town, 20 stores have already been resold by the original buyers and 10 stores at the second development have also changed hands.

SB Town, another commercial building in Magok, southwestern Seoul, has at least one property that attracted a 100 million won premium. At H-Street, premiums are about 50 million won.

“The market is becoming extremely active; we have already seen half the 36 stores on the first floor [at H-State] change owners,” said Cho Se-yoon, an official at Consulting Leading Knot, a real estate consulting company.

Experts say the commercial property market is picking up steam largely because of growing expectations about an economic recovery.

“For a commercial area to become energized, there should be a lot of demand from the surrounding areas and consumer sentiment has to come alive,” said Kwon Kang-soo, an executive at Korea Establishment Realty Agent. “Because the housing market has been reviving [recently], it has been exuding a positive impact.”

Ahn Min-seok, a researcher at the real estate specialist FR Investment, said investors can expect good profits from leasing commercial properties or from selling properties if they buy early rather than waiting for the commercial market to perk up after residents move in to their new apartments.

Recently, more investors are turning their eyes toward commercial properties because the supply of officetels and one-room apartments, which were quite lucrative investments in recent years, are now in surplus, which has led to declining profitability.

But experts warn that when investing in commercial properties, people have to be thorough in deciding what kind of businesses they would like to see in their properties and in what neighborhoods they want to focus on, because there are still disparities between districts.

For example, medical clinics and banks prefer to rent second floor spaces rather than occupy the first floor, where rents are usually much more expensive. Coffee shops and restaurants in general rent spaces on the first floors.

Additionally, some market experts note that commercial real estate on the outskirts of Seoul is still in the doldrums. Even if the neighborhood is very popular, investors should be cautious about whether the properties are wildly overpriced, if the supply situation is appropriate and what type of businesses will be target occupants.

BY CHOI HYUN-JOO [ojlee82@joongang.co.kr]