CBRE expects Korean GDP to rebound to 2.9% y-o-y in 2021, supported by a low base effect, the launch of vaccination programmes, and strong semiconductor exports. Potential headwinds include a resurgence in COVID-19 infections, which would likely result in the reintroduction of restrictions on social and business activity, curtailing growth. Base interest rates will remain low amid weak private consumption, the sluggish global economic recovery, and lingering COVID-19 caseload.
Net absorption is projected to reach 250,000 sq. m. in 2021, a figure consistent with the five-year average. Around 213,000 sq. m of new Grade A office supply will be completed this year, representing 70% of average annual supply over the past 10 years. CBRE projects rental growth of 1.2% y-o-y this year, with effective rental growth varying across different districts. As companies evaluate the impact of the pandemic on their office requirements, a bifurcation of demand for large and small office space will emerge.
CBR expects retail rents to decline slightly in 2021 amid continued pandemic-related economic headwinds. Overall effective rents are forecasted to fall by 2-3%, with performance varying across different districts. Retail leasing demand is expected to be directed into opening experiential stores, many of which are likely to require larger floor areas to allow for social distancing. This will lead to demand for space in non-core areas not too far from the city centre.
A record high 2.0 million sq. m. of new logistics space is scheduled to come on stream in 2021, the bulk of which will be added mainly in the southern region of Greater Seoul. New supply will lead to slightly higher vacancy in H2 2021, which is when most new space will be completed. However, overall vacancy is forecasted to remain at around 5%, except for areas with a particularly high volume of new stock, such as Incheon.
With several major Grade A office buildings and logistics centres expected to change hands in 2021, CBRE forecasts total transaction volume to reach KRW 17 trillion, roughly on par with last year. Korean companies seeking to improve their financial structure and free up capital are expected to contemplate sale leaseback deals in 2021, a trend that will provide investors with further opportunities to acquire stabilised office assets.