"Office Vacancy Rate to Rise 6.5% Next Year, Logistics Center Vacancy Rate to Fall"

There are projections that the office market next year will see a slowdown in demand, leading to a general increase in vacancy rates. As supply of logistics centers decreases, competition for prime locations is expected to intensify. In the case of data centers, while short-term supply is set to increase, long-term supply shortages are anticipated due to issues related to power and regulatory approvals.

On the 2nd, at the Al Square press conference held at the Plaza Hotel in Jung-gu, Seoul, Research Center Director Ryu Kangmin is presenting the "2025-2026 Comprehensive Real Estate Market Analysis Report." Provided by Al Square

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On December 2, AlSquare Research Center released the "2025-2026 Comprehensive Real Estate Market Analysis Report." The office market vacancy rate for next year is expected to rise to around 6.5%. In particular, in the CBD area, where new supply is concentrated, there is a possibility that the vacancy rate could temporarily reach double digits.

From this year through 2031, approximately 2.3 million pyeong of office space will be supplied in Seoul, with 900,000 pyeong concentrated in the CBD. Research Center Director Ryu Kangmin explained, "Due to the economic slowdown, the growth in office employment is not what it used to be, and the creation of new demand remains limited. Recently, the increase in vacancies is more influenced by declining leasing demand than by supply."

There have also been cases of rising vacancies even in areas with little new supply. Since last year, more companies have been relocating from the CBD, Gangnam, and Yeouido to other parts of Seoul or the outskirts of the metropolitan area to reduce costs. The CBD’s central function is weakening as the proportion of aging buildings increases and new business districts such as Gangnam, Magok, and Seongsu rapidly emerge. AlSquare explained, "While the large-scale new supply in the CBD will raise vacancy rates in the short term, it can also serve as an opportunity to restore the CBD’s somewhat diminished centrality and appeal."

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The logistics center market is expected to see intensified competition for locations. Over the past five years, supply volume has increased by 15% annually, resulting in continued oversupply. However, from this year through 2027, the average annual supply is expected to decrease to about 370,000 pyeong, which is only one-third of last year’s 1.2 million pyeong. As of the third quarter of this year, the vacancy rate for ambient logistics centers stands at about 15.7%, while the vacancy rate for cold (refrigerated and frozen) logistics centers is about 39.2%, both remaining at high levels. AlSquare projects that the vacancy rate for ambient logistics centers will decrease to 12% next year and to 9% in 2027. For cold logistics centers, the vacancy rate is expected to fall to 27% by 2027.

In terms of location, the preference for more affordable areas is expected to continue. According to AlSquare Research Center’s analysis of transportation costs in over 4,900 regions, Seongnam, Yongin, Hwaseong, and Gwangju in Gyeonggi Province were identified as optimal locations for wide-area logistics. For import and export logistics, areas near ports and airports such as Incheon, Busan, and Gimhae were most favorable, while for regional logistics, metropolitan cities with high population density had the lowest transportation costs.

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Demand for data centers remains robust due to the growth of the AI and cloud markets, but in the short term, the pace of supply increases is expected to outstrip demand. AlSquare noted, "There may be a temporary oversupply as data centers currently under development are completed, but in the mid- to long-term, supply constraints will support steady growth."

There are also factors restricting supply in the data center market. Since the 2018 revision of the Enforcement Decree of the Building Act, data centers can only be constructed for "broadcasting and telecommunications facilities" purposes. From 2023, regulations such as power grid impact assessments have been strengthened, significantly reducing the number of data center permits in the Seoul metropolitan area. As of September, the number of permits issued per month was around 10, about half the level of the previous year. Securing a stable power grid is crucial for data centers, but as the national power reserve ratio declines, there have been instances in the metropolitan area where it has fallen below 5%. Resident opposition due to concerns over electromagnetic waves, noise, and the heat island effect is also an obstacle. AlSquare stated, "There have been cases where development was halted even after obtaining permits. To ensure stable supply, environmentally friendly development methods are needed, such as reducing noise from cooling facilities and utilizing waste heat for local heating."

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For officetels, the indirect benefits from real estate regulations are expected to be limited. Jeonse and monthly rents are projected to rise, especially for larger units. While the resale restriction period of one year and heavier taxation on multiple property owners have limited the indirect benefits in the sales market, demand for apartment jeonse and monthly rentals may shift to large-sized officetels (over 85 square meters). Ryu Kangmin explained, "Satisfaction with the residential environment of officetels is higher than that of single-family, multi-family, or row houses and is similar to that of apartments. Due to the burden of monthly rent, shorter residence periods make tenants more sensitive to rent increases."

Ryu Kangmin stated, "After a period of overheating, the office and logistics center markets are now entering a phase of 'rebalancing supply and demand,' with vacancy rates and prices adjusting accordingly. For data centers, long-term growth can only be expected if infrastructure and regulatory challenges are addressed."

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