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Offices

Savills Research I Seoul, Korea

Image: A view of Seoul, CBD

"In Q4, net absorption in the Seoul prime office market remained positive, but new building supply outpaced net absorption which pushed the Q4 vacancy rate to 9.8 per cent. Prices of prime office buildings rose slightly in 2010 while the cap rate declined."

The Korean economy is estimated to have expanded by 6.1 per cent and is expected to grow by approximately 4.5 per cent in 2011.

Leasing demand, sustaining momentum from 2010, will show a steady upward trend in 2011.

Average rents rose by 2.1 per cent in Q4 from the same period last year but will see limited rent increase in 2011 due to the anticipated supply of additional buildings.

Despite stagnant face rent and declining effective rent, prices of prime office buildings rose slightly in 2010.

The Q4 investment market was primarily dominated by domestic investors and the transaction volume showed a year-on-year decrease as it did in Q3.

February 07, 2011

Over 200 offices and associates throughout the Americas, Europe, Asia Pacific, Africa and the Middle East.

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1. Economic Trends

According to the Bank of Korea, the domestic GDP growth rate for Korea in 2010 is estimated at 6.1 per cent1. Slower growth is expected for 2011, with local and international research institutions2 projecting growth rates from 4.3 to 4.5 per cent. In the meantime, the global economy is projected to post 4.2 per cent growth in 2011. Economic Outlook for 2011 (YoY)

2010(P) 2011(E)1H 2H Yearly 1H 2H Yearly

7.6% 4.6% 6.1% 3.8% 5.0% 4.5%Source: BOK, December 2010, Economic Outlook for 2011

Employee Figures for the Financial and Insurance Sectors, Q4/2001 - Q4/2010

2. Supply

In 2010, seven prime office buildings (with a total GFA of 442,000 sqm) were supplied to the market, equal to about 7 per cent of the entire prime office space in the three major office districts in Seoul (including owner-occupied buildings, as at Q4/2009). Such supplies raised expectations for a dramatic increase in the vacancy rate, but fast economic growth and demand, along with large companies remodeling or expanding their office space, kept pressure on vacancy rates. For example, four new buildings completed by Q3 posted an average occupancy rate of 85 per cent at the end of 2010.

1 BOK, December 10, 2010, [Economic Outlook for 2011]2 BOK, IMF, OECD and others

Occupancy Rates of Building Supplied in 2010

Newly Supplied Prime Office Buildings in Seoul, 2010

Completion District Building NameGFA

(sqm)Floors

Occupancy Rate and Major Tenants

March CBDJeongdong

Building39,144

20F/B5F

100%Korean Institute for

Curriculum and Evaluation,

The Presidential Committee on Green

Growth, New Zealand and the Netherlands

embassies and others

March GBDSamseong-

dong Building

30,64817F/B8F

80%IMK, Michelin Korea, Samsung Electronics,

Samsung SDS and others

June CBDLG U+ Tower

55,69528F/B6F

100%LG U Plus

June CBDFerrum Tower

41,59828F/B6F

67%Dongkuk Steel

Mill, SKT, Daeyang Shipping, Hahn &

Company, Edelman and others

October CBDLG

Gwanghwamun Office

51,26514F/B5F

100% owner occupiedLG Household & Health Care,

LG Life Science, Serveone

October CBD Center 1 168,00132F/B8F

17%McKinsey, Hanwha

E&C, MAPS and others

November CBD Twin Tree 55,57117F/B8F

0%No tenants secured

Total 441,922

Source: Savills Korea

680

700

720

740

760

780

800

820

840

860

Dec-01 Dec-02 Dec-03 Dec-04 Dec-05 Dec-06 Dec-07 Dec-08 Dec-09 Dec-10

Number Employed (thousands)

Source: Bank of Korea

67%

46%

100%

63%

17%

100%

74%

55%

67%83%

100%

80%

33%20%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Jeongdong(Mar) Samsungdong(Mar) LG U Plus Tower(Jun)

Ferrum Tower(Jun) Center 1(Oct) Twin Tree(Nov)

after Q1 after Q2 after Q3 Vacancy Rate



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Supply Outlook for 2011

In 2011 a total of 560,000 sqm (including LG Twin Tower with a GFA of 79,000 sqm currently under remodeling), equal to 8 per cent of the aggregate prime office space as of December 2010, is expected to come onto the market.

Buildings Slated for Completion in 2011

Delays caused GT Tower's completion to roll over to Q1/2011 from Q4/2010 with Cheil Worldwide pre-committing to leasing three floors. State Namsan Tower, which is planned for completion in Q2, has yet to secure tenants, but lease marketing and negotiations with potential tenants are being conducted. YG Building, which is going through a sales process, is also being marketed at corporate tenants.

Except for LG Twin Tower, which is LG's headquarter office building, One IFC is the only new building that will be put on the Yeouido market in 2011 and already has 60 per cent of its office space taken through pre-commitment. One IFC will house Deloitte (for a 16-year lease term), Daiwa Securities, ING Investment Management and large corporations' affiliates. Signature Tower and Mirae Asset Tower (formerly Pine Avenue), both to be completed in Q3, will release office space of 100,000 sqm and 130,000 sqm, respectively. The east and west buildings of LG Twin Tower have been under remodeling since October 2010 and are expected to be fully occupied when the facelift is completed in Q4/2011. LG Group is going through consolidation of its organisations and is planning to relocate some of its affiliates from Seoul Square and other buildings back to LG Twin Tower.

Two buildings completed in Q4/2010, Center 1 and Twin Tree, will play a major part in determining the office vacancy rate in 2011. In December 2010, Mckinsey and Hanwha E&C moved into Center 1 and will be followed by MAPS, Regus Korea and other tenants. Meanwhile, Twin Tree, which was completed in November, has no tenants on its rent-roll as yet.

New secondary building space of about 400,000 sqm was developed in 2010 and of those new buildings, Smartplex in Ssangnim-dong is expected to fill over 80 per cent of its office space with CJ affiliates. The extension building of the Korea Federation of Small and Medium Business is now fully occupied by KDB Capital and Korea Exim Bank. Central Place in Jungnim-dong has filled six floors with LG Hausys, while other buildings are being marketed for leasing and are under negotiation with potential tenants.

Newly Supplied Secondary Office Buildings, 2010

CompletionDistrict(Area)

Project NameGFA (sqm)

Floors

AprilOthers

(Yeongdeungpo)Extension wing of

Irae Building 31,193 16F/B6F

JulyOthers(Jamsil)

Korea Lutheran Church Centre 35,898 24F/B5F

AugustOthers

(Seodaemun)Salvation Army

Building 31,948 17F/B6F

September GBDI Tower

(Yeoksam Taebo Building)

18,588 18F/B6F

OctoberOthers

(Ssangnim-dong)

Smartplex (u rban redeve lopment project in Ssangnim-dong,

Jung-gu)

80,401 20F/B5F

October GBD Samseong-dong K Tower 19,385 15F/B6F

November YBDExtension wing of the Korea Federation of Small and Medium Business Building

52,214 10F/B3F

DecemberOthers

(Jungnim-dong)

Central Place(Maporo District V, Area

12-2)34,128 17F/B6F

DecemberOthers(Mapo)

Seoul National University Janghak Building

(Maporo District 1, Area 44-2)

21,278 18F/B6F

DecemberOthers

(Ineu-dong)

Jongno Place(Azia’s office facility

in Ineu-dong, Jongno-gu)45,735 14F/B7F

DecemberOthers

(Seodaemun)

West Gate Tower (office building in Migeun-dong /Maporo District 4,

Area 9)

29,986 19F/B7F

Total 400,754


Completion District Project NameGFA (sqm)

Floors

Q1/2011 GBD GT Tower 54,399 24/B8F

Q2/2011 CBDState Namsan/urban redevelopment project for Hoehyeon District 2-1

66,799 24F/B6F

Q2/2011 CBDYG Building

/ Dadong District, Areas 7 and 842,549 23F/B6F

Q2/2011 YBD One IFC (Building C) 88,248 32F/B7F

Q3/2011 CBDSignature Tower

/ Janggyo District, Area 699,994 17F/B6F

Q3/2011 CBD Mirae Asset Tower (Pine Avenue)

/ Jeodong District130,018 25F/B6F

Q4/2011 YBD LG Twin Tower (remodeling) 78,918 34F/B3F

Total 560,925



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3. Demand and Vacancy Rates

Net absorption, which had been in negative territory for five consecutive quarters in the wake of Lehman Brothers' bankruptcy in Q3/2008, turned around in Q1/2010 as economic recovery unleashed latent demand. Even with net area absorption of 230,000 sqm in 2010 however, the average yearly vacancy rate rose to 7.2 per cent (or 5.1 per cent when owner-occupied buildings are included). Such a high vacancy rate, despite the growing demand, came from the supply of new prime buildings that created additional office space of 442,000 sqm, which is far higher than the ten-year average annual supply of 330,000 sqm.

Vacancy Rates, Q1/2010 - Q4/2010

Vacancy Trends in Q4/2010

The Seoul prime office vacancy rate was 9.8 per cent in Q4. In the CBD, the rate soared to 17.2 per cent during the period with the completion of Kyobo Building's remodeling and the newly supplied Center 1 and Twin Tree, the highest level since Savills conducted its first market research in Q3/1997. When Center 1 and Twin Tree, which were only recently completed and have yet to locate tenants, are excluded, the vacancy rate falls to 8.6 per cent in the CBD and 6.0 per cent in Seoul’s overall market. (If the 30,000 sqm supplied by the remodelled Kyobo Building is excluded, the rate drops further to 6.9 per cent in the CBD and 5.3 per cent in Seoul.)

Vacancy Details for CBD and Seoul, Q4/2010

Source: Savills Research & Consultancy

In the GBD, Oracle moved out of Golden Tower and life insurance companies at GFC and Capital Tower either relocated or closed their branch offices in the building, vacating about 33,000 sqm of office space. However, Daeryung Gangnam Tower has attracted Samsung C&T to occupy the 10,000 sqm vacancy created when Posco E&C relocated to Songdo. Posteel Tower has also filled its vacancy with its affiliates. All in all, the GBD vacancy rate rose by 0.2 percentage points from the previous quarter to 4.7 per cent as the absorbed space almost offset the area vacated.

Seoul Prime Office Building Vacancy Rate, Q1/2002-Q4/2010

Around 13,000 sqm of new vacancy has been created in YBD, as a result of HP downsizing its offices in HP Building, Samsung Life insurance downsizing in Yuhwa Securities Building and KT downsizing in its KT Building. Consequently, YBD saw the vacancy rate rise by 1 percentage point from the previous quarter to 3.5 per cent.

Major Tenant Relocation in Q4/2010

District Q1 Q2 Q3 Q4Annual average

CBD 11.7% 11.6% 8.5% 17.2% 12.2%

Gangnam 2.9% 5.2% 4.5% 4.7% 4.3%

Yeouido 2.2% 2.0% 2.5% 3.5% 2.6%

Average in Seoul

6.2% 7.1% 5.7% 9.8% 7.2%


Previous Building Current Building

Tenants District Building Name

Leased area

(sqm)District Building

Name

Leased area

(sqm)

Oracle GBD Golden Tower 15,600 GBD ASEM

Tower 6,100

Samsung C&T GBD

Samsung C&T

SeochoBldg

N/A GBDDaeryung Gangnam

Tower9,000

Kim & Chang CBD CBD

Sec Bldg N/A CBD Jeongdong Building 8,300

Hankyul Law Firm GBD Teheran

Building N/A CBD Kyobo Building 3,600

HP YBD HP Building 9,600 Office downsizing

Source: Savills Research & Consultancy

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

Q1

Q2

Q3

Q4

Q1

Q2

Q3

Q4

Q1

Q2

Q3

Q4

Q1

Q2

Q3

Q4

Q1

Q2

Q3

Q4

Q1

Q2

Q3

Q4

Q1

Q2

Q3

Q4

Q1

Q2

Q3

Q4

Q1

Q2

Q3

Q4

2002 2003 2004 2005 2006 2007 2008 2009 2010


CBD Gangnam Yeouido

Center 140%

Twin Tree16%

Kyobo Remodeling

8%

Others36%

CBD Vacancy Details

Center 130%

Twin Tree12%

Kyobo Remodeling

6%

Others52%

Seoul Vacancy Details


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In Q4/2010, 36 of the 81 buildings surveyed had no vacancy, making it the highest number of fully occupied office buildings of all quarters, while the number of buildings with a vacancy rate of below 5 per cent increased to 17. In addition, Q4 saw fewer buildings with vacancy rates of between 5 and 15 per cent. Meanwhile, the number of buildings with a vacancy rate of over 15 per cent rose by two, bringing the total to 14. In terms of vacant area, two recently completed buildings and the remodelled Kyobo Building accounted for 52 per cent of total prime office vacancy.

Prime Office Building Vacancy Rate, Q1/2010 - Q4/2010

Vacancy Outlook for 2011

Despite the steady increase in demand in 2010, approximately 230,000 sqm of office space was absorbed, far lower than the annual average absorption of 330,000 sqm during the early 2000s when the economy expanded by over 4 per cent and the leasing market was vibrant. Given that the Korean economy is projected to grow in the mid-4 per cent range in 2011, net absorption should exceed 330,000 sqm.

Seoul Prime Office Supply, Absorption and Vacancy Rates, 1998 - 2011(E)*

* Buildings 100%-occupied by owners were factored in for calculation of the absorption and vacancy rate.

Thanks to economic recovery in 2010, large companies such as LG, Samsung, and Kumho have consolidated and expanded their offices. Financial institutions opened new branches, tenants in small and medium-sized buildings moved to prime buildings and there were a number of other companies enlarging their office space. Considering that those changes translated into a steady increase in demand, momentum should continue in 2011 alongside the upbeat economic trend.

However, such a demand hike is likely to lose its lustre in the face of the 500,000 sqm of new office space to be put on the market in 2011, the highest amount in 12 years, inevitably leading to a temporary vacancy hike. As such, the vacancy rate in 2011 is projected at 8 per cent (or 11 per cent when lease-only buildings alone are considered).

4. Rents

Rental Trends in 2010

Rent rates increased in every quarter across major office districts in 2010, except for Gangnam and Yeouido in Q4, bringing the aggregate rate of increase to 2.1 per cent. However, buildings with high vacancy rates cut their effective rent by providing tenants with rent-free periods, rather than lowering face rent. As a result, while rent rates rose on the surface, effective rent rates dropped by up to 20 per cent for some buildings. In the meantime, buildings with a vacancy rate of below 5 per cent, those that secured fixed rent increase rates through long-term lease contracts and those that have been leased out to owner-companies' affiliates, provided tenants with no rent-free periods and raised their rents as initially planned.

QoQ Rent Increase Rates (based on NLA)

YoY Rent Increase Rates (based on NLA)

0%

10%

20%

30%

40%

50%

0% Less than 5% 5~10% 10~15% Over 15%

% of Surveyed Buildings


Q1 2010 Q2 2010 Q3 2010 Q4 2010

-2%

0%

2%

4%

6%

8%

10%

-200

0

200

400

600

800

98 99 00 01 02 03 04 05 06 07 08 09 10 11

Unit:1,000 sqm


Annual Net Additions to Supply Annual Net Absorption Annual Average Vacancy (RHS)

District Q1 Q2 Q3 Q4 2010

CBD 1.1% 0.1% 0.2% 0.6% 2.1%

Gangnam 0.8% 0.7% 0.3% -0.2% 1.6%

Yeouido 1.7% 1.1% 0.2% 0.0% 3.1%

Seoul 1.1% 0.6% 0.3% 0.2% 2.1%

Source: Savills Korea* The figures in the 2010 column represent the year-on-year increase rates in Q4

District Q1 Q2 Q3 Q4 2010

CBD 1.1% 1.3% 2.0% 2.1% 1.6%

Gangnam 1.2% 1.6% 2.0% 1.6% 1.6%

Yeouido 3.2% 4.3% 3.1% 3.1% 3.4%

Seoul 1.6% 2.0% 2.2% 2.1% 2.0%

Source: Savills Korea*The figures in the 2010 column represent the annual increase rate.


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Rental Trends in Q4/2010

In Q4/2010 the average face rent rose by 0.2 per cent from the previous quarter. There were two buildings that lowered rent rates over concerns about new office supply and the subsequent increase in vacancy, but Kyobo Building, with its remodeling completed in November, raised its rent by 24 per cent pushing up the average rent increase rate3. Of the major prime buildings in Seoul, around 50 buildings, or 65 per cent of all stock, are known to allow one to two month rent-free periods for each year of lease in addition to a free interior fit out period (only the maintenance fee is charged during the interior work period). Therefore, the average effective rent rates are estimated to be lower than the face rent by 8 to 16 per cent.

Seoul Prime Office Building Face Rent, Q3/1997-Q4/2010

The picture is quite different for YBD where accessibility has further improved since the opening of subway line 9 in July 2009; while IFC, when completed, is expected to attract blue chip tenants. This has heightened anticipation of a boost in the office and retail markets and as a result YBD enjoyed the lowest vacancy rate and a 3.1 per cent rent increase in 2010, the highest of the three major office districts.

Face Rent Trends, Q4/2010

3 The rent in Q4 is 0.1% lower than that of the previous quarter if Kyobo Building is excluded.

Rent Outlook for 2011

Since rent increases in most buildings tend to occur at the beginning of the year, according to our survey face rent is expected to rise by around 1 per cent in Q1/2011. However, there will be some variance in the rates of increase between buildings with vacancies of below 5 per cent (60 per cent of all surveyed buildings) and those with vacancies of over 10 per cent.

Buildings with vacancies of over 10 per cent are trying to attract tenants by lowering their actual marketing rates or offering other incentives. Some of these buildings had considered raising the rent but our survey shows that they increased only their maintenance fees in the face of a surge in the supply of office space. Therefore, overall effective rent is likely to fall by 1 per cent in 2011.

5. Transactions and the Investment Market

In Q4, seven office buildings changed hands with a combined transaction value of KRW590 billion. Total transactions of office buildings for 2010 were approximately KRW2.1 trillion, reaching only 58 per cent of the volume posted in 2009 and 50 per cent of the peak recorded in 2007.

Transaction Volumes in the Seoul Office Building Market, 2001 - 2010

* Based on hard assets

Meanwhile, it is estimated that the cap rate fell below the level reported in 2009 and the capital value rose in comparison to the 2009 level. This can be attributed to limited availability of prime office buildings in the market to satisfy strong demand from investors, which translated into fierce competition for investment-grade buildings.

Business District

Face Rent (KRW/3.3058 sqm,

Gross Leasible Area)

Face Rent (KRW/3.3058 sqm, Net Leasible Area)

2010 Average Rent Change

CBD 90,200 157,400 2.1%

Gangnam 78,600 153,700 1.6%

Yeouido 63,700 134,600 3.1%

Seoul 81,000 151,800 2.1%


50

70

90

110

130

150

Q3

Q4

Q1

Q2

Q3

Q4

Q1

Q2

Q3

Q4

Q1

Q2

Q3

Q4

Q1

Q2

Q3

Q4

Q1

Q2

Q3

Q4

Q1

Q2

Q3

Q4

Q1

Q2

Q3

Q4

Q1

Q2

Q3

Q4

Q1

Q2

Q3

Q4

Q1

Q2

Q3

Q4

Q1

Q2

Q3

Q4

Q1

Q2

Q3

Q4

Q1

Q2

Q3

Q4

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Index 2001 Q1=100


CBD Gangnam Yeouido

0

1

2

3

4

5

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010Source: Savills Korea

KRW billions ('000s)Q1 Q2 Q3 Q4


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By nationality, Korean investors and local companies such as NPS dominated the market, but international investors are also becoming more active in the market.

Proportion of Seoul Office Building Buyers by Nationality and Type, 2008 - 2010

In Q4/2010, DSME, Foosung Building (formerly Hyunjin Evervill Tower), World Meridian Building, Dongbu Finance Center, Kolon Building's annex, Hana Daetoo Securities and M-net Building found new owners. The DSME Building, owned by Kocref 7, was bought by DSME, a tenant of the building who exercised its call option (granted at the time the lease agreement was executed) upon the maturity of a fund. The Kolon Building Annex, also under the ownership of Kocref 7, was acquired by KVG REIT 1 while the Foosung Building was purchased by Foosungtech after it underwent court receivership. As for Dongbu Finance Center, Dongbu Corporation sold part of the building (14F, 15F, 16F, 17F, 31F, and part of 32F) to Dongbu Insurance. World Meridian Building was handed over to Shinhan Bank, the major creditor, when its owner applied for a debt workout process and then was sold to Kumkang, a shoe manufacturer. Hana Daetoo Securities sold its company building in Yeouido to Daol Land Chip Public REIT 1 formed by its affiliate Daol Fund Management. M-net Building was purchased by Nomura-Rifa private REIT 1, formed by Nomura-Rifa Asset Management and the beneficiary of the fund is known to be a local investor.

Major Transactions in Q4/2010

The cap rate in major office districts in Seoul dropped from the low 6 per cent range in Q1 to the high 5 per cent range in Q4. As competition is becoming fierce for blue chip properties in major office districts, and their cap rates subsequently declining, prices of office buildings are recovering to the level seen before Lehman Brothers' bankruptcy. In November 2010 the benchmark interest rate was raised by 0.25 percentage points, pushing the short term interest rate up, however the five-year government bond yield declined, widening the cap rate to 190 basis points. As a result, the cap rate is more likely to fall than to rise.

Seoul Office Building Cap Rate Trends, 2005-2010

23%

8%

19%

51%

32%

40%

26%

60%

41%

2008

2009

2010


Foreign Investors Domestic Institution Individuals/Corporations

DistrictBuilding Name

Seller BuyerArea

Transacted (sqm)

Transaction Price

( KRW bil.)

October

CBD DSMEKOCREF

CR-REIT 7

Daewoo Shipbuilding

& Marine Engineering

24,853 91

OthersFoosung Building (formerly Hyunjin

Evervill)

Hyunjin Evervill,

Hana BankFoosungtech 9,352 25

GBDDongbu Finance

CentreDongbu

CorporationDongbu

Insurance

6,521(partial

transaction)36

November

GBDWorld Meridian

Building

World Construction, Shinhan Bank

Kumkang 10,461 69.5

OthersKolon Building

AnnexKOCREF

CR-REIT 7KVG REITs 26,861 49

December

YBDHana Daetoo

Securities

Hana Finance Group

Daol Land Chip Public

REIT 169,079 290

Others M-net Building AON21Nomura-

Rifa Private REIT 1

9,750 25

4%

5%

6%

7%

8%

9%

10%

Jan-

05

May

-05

Aug-

05

Dec

-05

Apr-

06

Aug-

06

Dec

-06

Apr-

07

Aug-

07

Dec

-07

Apr-

08

Aug-

08

Dec

-08

Apr-

09

Aug-

09

Dec

-09

Apr-

10

Aug-

10

Dec

-10


CBD GBD YBD

Offices

For further information, please contact:

This document is prepared by Savills for information only. Whilst reasonable care has been exercised in preparing this document, it is subject to change and these particulars do not constitute, nor constitute part of, an offer or contract; interested parties should not rely on the statements or representations of fact but must satisfy themselves by inspection or otherwise as to the accuracy. No person in the employment of the agent or the agent's principal has any authority to make any representations or warranties whatsoever in relation to these particulars and Savills cannot be held responsible for any liability whatsoever or for any loss howsoever arising from or in reliance upon the whole or any part of the contents of this document. This publication may not be reproduced in any form or in any manner, in part or as a whole without written permission of the publisher, Savills. © Savills (Hong Kong) Limited. 2011.


koreaMoonduck KimChief Executive Officer, Korea+82 2 2124 4101 [email protected]

leasing services, korea Grace KoDirector, CRES+82 2 2124 4115 [email protected]

Seunghan LeeDirector, Leasing & Marketing, Development Sales+82 2 2124 4253 [email protected]

Sue LeeDirector, Tenant Rep.+82 2 2124 4180 [email protected]

research & consulting, koreaJoAnn HongSenior Manager+82 2 2124 4182 [email protected]

investment advisory, koreaKookhee HanAssociate Director+82 2 2124 4181 [email protected]

asset management, koreaYoungtaek KimVice President+82 2 2124 4208 [email protected]

research & consultancy, asia pacificSimon SmithSenior Director+852 2842 [email protected]

addressSavills Korea Co., Ltd11/F Seoul Finance Center84 Taepyungro-1-ga, Chung-gu,Seoul, Korea 100-768T: +82 2 2124 4114 F: +82 2 2124 4188

corporate websitewww.savills.co.kr

Cap Rate Trends, Q1/2001-Q4/2010

The capital value (average market price) of prime office buildings, which plummeted to 70 per cent of the peak level recorded in 1H/2008 in the wake of the global financial crisis has recovered to 90 per cent level as Q4/2010.

Capital Value of Seoul Prime Office Buildings, Q1/2005-2011(E)

-400

-200

0

200

400

600

800

1,000

1,200

1,400

-4%

-2%

0%

2%

4%

6%

8%

10%

12%

14%

Mar

-01

Dec

-01

Sep-

02

Jun-

03

Mar

-04

Dec

-04

Sep-

05

Jun-

06

Mar

-07

Dec

-07

Sep-

08

Jun-

09

Mar

-10

Dec

-10


Spread Cap rate 5yr Treasury Bond

Investment Market Outlook for 2011

For the time being, due to the limited availability of prime buildings and abundant liquidity in the market, investors are expected to engage in fierce competition. As such, the cap rate should find support at its current level or perhaps even fall with the slight rise in the interest rate. Therefore, the capital value of Seoul prime office buildings is likely to appreciate slightly in 2011 from 2010 levels.

With the strong preference among investors for safe assets, prime buildings in good locations and stable lease structures are set to continue to be the first choice for investors for the foreseeable future. Meanwhile, secondary office buildings in core areas will likely change hands at lower prices, generating higher cap rates than those of prime buildings. Furthermore, the transaction market for secondary office buildings situated in non-core areas which did not generate significant interest among investors in 2010 is likely to remain bearish in 2011.

0

20

40

60

80

100

120

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4

2005 2006 2007 2008 2009 2010 2011E


Q3/2008=100


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Appendix 1: Overview of the Seoul Office Market and Savills Korea Office Survey

Close to 70 per cent of large office buildings (30,000 sqm or more) in Seoul are concentrated in three major business districts - Central (CBD) 35.9 per cent, Gangnam (GBD) 24.0 per cent and Yeouido (YBD) 13.4 per cent. CBD is the largest of these districts and is home to major government and multinational institutions. GBD also houses many multinational companies and is an information technology centre. YBD, the "Wall Street" of South Korea, includes the headquarters of major securities firms and broadcasting companies.

Summary of Surveyed Buildings, December 2010

CBD GBD YBD Total

A

Number of Buildings 17 13 5 35

Average GFA (sqm) 81,387 99,435 90,964 89,459

Average Year of Completion 1999 1999 1994 1998

B

Number of Buildings 19 17 10 46

Average GFA (sqm) 49,223 39,153 44,115 44,391

Average Year of Completion 1995 1998 1995 1996

Total Number of Buildings 36 15 30 81

Total Area (sqm) 2,318,816 1,958,247 895,971 5,173,034

The Savills Korea Quarterly Office Survey is the longest running survey of prime office stock in Seoul. Established in 1997, it currently comprises 81 of the 110 buildings in Seoul classified as "prime" buildings.

Prime buildings: Buildings with a gross floor area greater than 30,000 sqm with good accessibility and facilities, a high level of finish, and creditworthy blue chip tenants.

Monthly rent: Surveyed rents are "face rents", the asking rents reported by landlords for mid-level floors. These rents are standardised by Savills Korea to account for variations in the security deposits required by different landlords to produce an effective rental figure for net leasable area.

Net absorption: The net change in occupied space over the quarter.

HONG KONG SAR Savills (Hong Kong) Limited23/F Two Exchange Square , Central, Hong KongTel: (852) 2842 4534 Fax: (852) 2869 6738 Contact: Raymond Lee E-mail: [email protected] Co. Licence: C-002450

Savills Valuation and Professional Services Limited28/F Two Exchange Square, Central, Hong KongTel: (852) 2801 6100 Fax: (852) 2501 5810 Contact: Charles Chan E-mail: [email protected] Co. Licence: C-023750

Savills Property Management Holdings Limited8/F Cityplaza One, 1111 King’s Road, Taikoo Shing, Hong KongTel: (852) 2534 1688 Fax: (852) 2851 1249Contact: Kendrew Leung E-mail: [email protected] Co. Licence: C-002993

Savills Guardian (Holdings) Limited7/F Cityplaza One, 1111 King’s Road, Taikoo Shing, Hong KongTel: (852) 2512 1838 Fax: (852) 2887 3698Contact: Peter Ho E-mail: [email protected]

MACAO SARSavills - Macao Savills (Macau) LimitedSuite 1310, 13/F Macau Landmark, 555 Avenida da Amizade, MacaoTel: (853) 8506 6288 Fax: (853) 2878 1805 Contact: Franco Liu E-mail: [email protected]

CHINA Savills - Shanghai 20/F Shanghai Central Plaza, 381 Huaihai Middle Road, Shanghai 200020, ChinaTel: (86) 21 6391 6688 Fax: (86) 21 6391 6699Contact: Albert Lau E-mail: [email protected]

Savills - Beijing2101 East Tower, Twin Towers, B-12 Jianguomenwai Avenue, Chaoyang DistrictBeijing 100022, ChinaTel: (86) 10 5925 2288 Fax: (86) 10 5925 2299Contact: Billy Chau E-mail: [email protected]

Savills - Guangzhou Room 906, R & F Centre, No. 10 Hua Xia Road, Zhu Jiang New Town,Guangzhou, 510623, ChinaTel: (86) 3892 7168 Fax: (86) 3892 7030 Contact: Woody Lam E-mail: [email protected]

Savills - ShenzhenUnit A, 5/F, Anlian Plaza, 4018 Jintian Road, Futian District, Shenzhen 518026, ChinaTel: (86) 755 8828 5707 Fax: (86) 755 8828 5676 Contact: Woody Lam E-mail: [email protected] in Chengdu, Chongqing, Dalian, Hangzhou, Shenyang, Tianjin, Xiamen

ASIA Savills - IndonesiaPT. Procon Indah19/F Indonesia Stock Exchange Building, Tower 2, Jl Jenderal Sudirman Kav52-53, Jakarta 12190 IndonesiaTel: (62) 21 515 3777 Fax: (62) 21 515 3232Contact: Lucy Rumantir E-mail: [email protected]

Savills - JapanSavills Japan Co., Ltd.CR Kamiyacho Building 10F, 1-11-9 Azabudai, Minato-ku,Tokyo 106-0041, JapanTel: (81) 3 5562 1700 Fax: (81) 3 5562 1705Contact: Christian Mancini E-mail: [email protected]

ASIA PACIFIC HEADQUARTERS 23/F Two Exchange Square, Central, Hong KongTel: (852) 2842 4400 Fax: (852) 2868 4386

Savills - KoreaSavills Korea11/F Seoul Finance Center, 84 Taepyungro-1-ga,Chung-gu, Seoul, Korea 100-768Tel: (82) 2 2124 4201 Fax: (82) 2 2124 4188Contact: Robert McKellar E-mail: [email protected]

Savills - MalaysiaSavills Rahim & CoLevel 17, Menara Uni. Asia, 1008 Jalan Sultan Ismail, 50250Kuala Lumpur, MalaysiaTel: (60) 3 2691 9922 Fax: (60) 3 2691 0096Contact: Robert Ang E-mail: [email protected]

Savills - SingaporeSavills (Singapore) Pte Ltd.2 Shenton Way, #17-01 SGX Centre 1, Singapore 068804Tel: (65) 6536 5022 Fax: (65) 6538 5540Contact: Chris Marriott E-mail: [email protected]

Savills - TaiwanSavills (Taiwan) Limited17F-1, Exchange Square, No. 89, Sung Ren RoadXin-Yi District, Taipei, TaiwanTel: (886) 2 8789 5828 Fax: (886) 2 8789 5929 Contact: Cynthia Chu Email: [email protected]

Savills - ThailandSavills (Thailand) Limited26/F Abdulrahim Place, 990 Rama IV Road,Silom, Bangrak, Bangkok 10500, ThailandTel: (66) 2 636 0300 Fax: (66) 2 636 0339Contact: Robert Collins E-mail: [email protected]

Savills - Vietnam 18/F, Fideco Tower, 81-85 Ham Nghi Street, District 1, Ho Chi Minh City, VietnamTel: (84) 8 3823 9205 Fax: (84) 8 3823 4571 Contact: Brett Ashton E-mail: [email protected] in Hanoi AUSTRALIASavills - AustraliaSavills (Aust) Pty Ltd.Level 7, 50 Bridge Street, Sydney, AustraliaTel: (61) 2 8215 8888 Fax: (61) 2 8215 8899Contact: Paul McLean E-mail: [email protected] in Adelaide, Brisbane, Canberra, Gold Coast, Liverpool, Melbourne, Parramatta, Perth, Sunshine Coast and Sydney. NEW ZEALANDSavills - New ZealandBarfoot & ThompsonLevel 5, 50 Kitchener Street, Auckland, New ZealandTel: (64) 9 307 5523 Fax: (64) 9 303 1689Contact: Peter Thompson E-mail: [email protected]

NORTH AMERICASavills - New YorkSavills LLC599 Lexington Avenue, 36th Floor, New York, NY 10022Tel: (1) 212 328 2800 Fax: (1) 212 328 2828Contact: John D. Lyons E-mail: [email protected]

UNITED KINGDOM / EUROPE / SOUTH AFRICASavills - Europe20 Grosvenor Hill, London W1K 3HQ, U.K.Tel: (44) 207 499 8644 Fax: (44) 207 495 3773Contact: Jeremy Helsby E-mail: [email protected] throughout the United Kingdom, Belgium, France, Germany, Hungary, Italy, Netherlands, Poland, Spain and Sweden. Associate offices in Austria, Greece, Norway, Portugal, Russia, Turkey and South Africa.

This document is prepared by Savills for information only. Whilst reasonable care has been exercised in preparing this document, it is subject to change and these particulars do not constitute, nor constitute part of, an offer or contract; interested parties should not rely on the statements or representations of fact but must satisfy themselves by inspection or otherwise as to the accuracy. No person in the employment of the agent or the agent’s principal has any authority to make any representations or warranties whatsoever in relation to these particulars and Savills cannot be held responsible for any liability whatsoever or for any loss howsoever arising from or in reliance upon the whole or any part of the contents of this document. This publication may not be reproduced in any form or in any manner, in part or as a whole without written permission of the publisher, Savills. © Savills (Hong Kong) Limited. 2011. (I/11)

Savills, the international real estate advisor established in the UK since 1855 with over 200 offices and associates worldwide.

Robert McKellar - CEO, Asia PacificRaymond Lee - CEO, Greater ChinaChris Marriott - CEO, South East AsiaCharles Chan - MD, Valuation & Professional Services, Greater China

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