Seoul’s prime office building market will face flagging demand due to the coronavirus coupled with new supply in the second quarter, which will create more empty space within the properties and reduce their cash flow, Savills Korea said in a report Wednesday.

According to the real estate services firm, real estate investors in South Korea are expected to take a cautious stance as uncertainties in the leasing market are likely to erupt in terms of the proposed buyers’ financing conditions, while liquidity risks are on the rise.

In the meantime, Seoul will finish the construction of SG Tower in central Seoul in the second quarter and Parc 1 complex in Yeouido in the third quarter, among others.

“Occupier demand is expected to soften as the epidemic drags on the economy,” said JoAnn Hong, director of research at Savills Korea.  “Subdued demand and new supply additions equivalent to 8 percent of total stock in March 2020 will drive up vacancy at a faster pace starting in the second quarter of 2020.”

Meanwhile, the impact of the coronavirus pandemic has yet to hit the commercial real estate market in the capital city as of the first quarter.

The volume of transactions by Seoul’s prime office properties rose 14 percent to 2.4 trillion won ($2 billion).

Key deals include Igis Asset Management-led acquisition of Namsan Square for 505 billion won, the Taepyeongro Building deal that cost 302.5 billion won and NH-Amundi Asset Management’s purchase of the Orange Center for 252 billion won in the central business district, as well as BNK Asset Management’s BNK Yeouido Building purchase for 271.5 billion won.

Also, the buildings’ vacancy rate -- often used to gauge the real estate asset’s financial health -- fell slightly to 7.5 percent, as most tenants signed their contracts prior to the arrival of COVID-19.

By Son Ji-hyoung (consnow@heraldcorp.com)