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Oversupply of commercial properties: floor area ratio and construction costs + supply-demand imbalance
In Seoul, the metropolitan area, and even in major cities outside the capital, the supply of commercial properties is greatly outstripping market demand. Especially in Seoul, authorities are pushing for high-rise redevelopment by easing floor area ratio limits, but this has sent construction costs soaring and put a heavy burden on property owners.
As more commercial properties are supplied, vacancy rates are climbing. The reason new retail units remain empty is simply that supply and demand are out of balance.
As more commercial properties are supplied, vacancy rates are climbing. The reason new retail units remain empty is simply that supply and demand are out of balance.
Problems: Soaring vacancy rates + shrinking economically active population
No matter where you go in the Seoul metropolitan area—Wirye, Gwanggyo, Siheung, Cheongna, Magok, Hanam, Samsong—you'll find new commercial units that have sat empty for years. This shows just how excessive the supply has become. Between 2000 and 2019, 30 million square meters of commercial land were added in Seoul. But the economically active population in the city keeps dropping, so even with more supply, demand is actually falling.
Solution? Adjust the floor area ratio + analyze supply timing and demand
It’s important to manage floor area ratios properly so construction costs are less of a burden, and to keep supply and demand in check. The Ministry of Land, Infrastructure, and Transport should coordinate when supplies hit the market and assess real demand. That way, vacancy rates can be contained.
Even around Pangyo, there are lots of empty commercial units. Some landlords I personally know are now struggling, so it really seems like something big may be about to happen in the real estate market. And yes, people often say, "Why not just lower the rent?"—but it’s not that simple. Most owners buy their properties with loans, just like with houses, so when interest rates go up, it’s actually tough to offer cheaper rents... (Of course, sometimes they’d rather rent at a loss than not at all, so they reluctantly end up doing just that.)
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I post articles related to IT 💻, economy 💰, and humanities 🎭.
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haebom@kakao.com
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I post articles related to IT 💻, economy 💰, and humanities 🎭.
If you are curious about my thoughts, perspectives or interests, please subscribe.
haebom@kakao.com