Chaebol shift offices from 3 city centers as foreign companies move in

As the economy stalls and major conglomerates, including Samsung, go under various types of corporate restructuring, large companies are looking for cheaper office space. Swanky properties in central business districts like Gangnam District, southern Seoul, and Yeouido, western Seoul, are increasingly being occupied by foreign companies.

According to a report by real estate consultancy CBRE Korea, conglomerates continue to hold substantial space in top notch office buildings in three major business districts - the Central Business District (CBD), Gangnam Business District (GBD) and Yeouido Business District (YBD), accounting for 34.7 percent. But for grade-A quality offices, their occupancy fell last year 2.4 percentage points to 43 percent.

“The chaebol retain a strong appetite for grade-A space, but the economic slowdown and cost cuts have led to a decline in the proportion of office space leased by chaebol in grade-A buildings in 2015,” said Park In-sub, head of Research at CBRE Korea. “The completion of new grade-A buildings in recent years has enabled large grade-B tenants to make flight-to-quality moves to take advantage of longer rent-free periods offered by grade-A landlords in the CBD

“At the same time, however, many chaebol, including LG U+ and Daewoo International, have opted to move out of the three main business districts in favor of relatively cheaper, new buildings in non-core locations,” Park said.

The researcher added that the trend is expected to continue this year with ongoing restructuring by Korean conglomerates.

“This will impact the general economy and also shape demand patterns in the office leasing market,” he said. “This year, we’ve seen chaebol selling their headquarters buildings in an attempt to strengthen their cash reserves, while a few companies have moved to new headquarters and leased their previous spaces to tenants, thereby releasing new space into the market.”

CBRE’s recent report also showed that occupancy of public companies in top-quality office buildings has shrunk as well. Public companies’ occupancy of major business districts in Seoul has been waning since 2013, when they started relocating to other regions of the country, including the administrative capital of Sejong City.

On the flip side, foreign companies’ occupancy of top-quality office buildings has grown, especially in Yeouido, where major companies such as AIG and IBM have been moving in to prime buildings such as the IFC Towers. Last year, foreign companies accounted for 16.2 percent of the office space, a 3.3 percentage point increase from the previous year.

Gangnam District still has the largest portion of foreign companies among the three major districts. Foreign companies accounted for 30.3 percent of the grade-A and grade-B office space there, a 1.8 percentage point rise.

Overall, foreign companies’ occupancies in major business districts have slightly dipped compared to the previous year, largely because there was a sharp drop in central Seoul. Foreign companies’ occupancies fell 3.9 percentage points during the same period to 21.3 percent.

BY LEE HO-JEONG [lee.hojeong@joongang.co.kr]