Boston, MA -- (SBWIRE) -- 03/07/2014 -- After a troubling few years, we are seeing some signs of economic improvement, and while positive economic figures may not last, we note that the Bank of Korea's neutral monetary policy will boost stability in the sector. We are particularly positive towards office real estate, with a steady stream of activity in the sector.

The South Korean commercial real estate sector is dominated by real estate investment trusts (REITs), indicating its developed nature. REIT activity is only likely to increase, and, in tandem, so is the extent to which South Korean real estate concerns are active overseas, notably in the UK and the US, but also elsewhere in Asia.

Although vacancy rates in the office sub-sector will remain an issue in some areas, we are broadly positive. There is a steady stream of activity in the sub-sector, and South Korea's status as a regional centre means that there is continued demand for foreign firms.

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Likewise, the retail sector is beginning to look up, with demand buoyed by a small development pipeline, consumer spending, appetite for Western-style retail and the country's strong tourism industry.

Although we are less sanguine towards industrial real estate, as South Korea's traditionally strong manufacturing sector has been buffeted by global economic headwinds over the past few years, we note government efforts to rebalance the industrial sector towards more value-added industries, eg innovative IT products and bio-science, and believe this will have long-term upside for the industrial real estate sector.

We highlight Seoul, with its three globally famous business districts, as remaining the main driver of office real estate in the country, charging the highest rental rates by a significant margin. The capital will also remain the key driver of growth in the retail space, because of its size and cultural importance. Meanwhile, we see a rebalancing of the traditional manufacturing city of Daegu and the port city of Busan towards more high-tech, value-added industry, as illustrating the long-term new direction of industrial real estate.

Downside to our fairly optimistic outlook for South Korean real estate in general comes from our forecasts for a still-slow economic recovery (we are forecasting a 3% increase in real GDP in 2014), combined with the long-term impact of a slowdown in Chinese growth, which could have a significant impact on this export-oriented economy.

Recent Developments

- In December 2013 insurance company AIA Korea bought a tower to be used as the firm's headquarters, in Junggu, Seoul. The company plans to move in in 2014.
- In the same month it was reported that Singapore-listed ARA Asset Management was to buy Macquarie Real Estate Korea.
- In January 2014 it was reported that Lotte Shopping was planning an initial public offering (IPO) for a REIT for its Korean shopping mall assets in Singapore.

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