Korea's warehouses suffer oversupply, rising vacancies

Logistics centers in Seoul suburbs are suffering oversupply and rising vacancy rates, according to a report from South Korean commercial real estate advisory firm Real Estate Direct, better known as RSquare, on Friday.

There was new supply of 184,525 square meters of warehouse space in the Seoul Metropolitan Area in the first half of this year, raising the accumulated supply by 0.6% to 33.7 million square meters, the report said.

Vacancies of logistics centers in Seoul suburbs have risen since 2022 due to oversupply. The vacancy rate of ambient warehouses in the area increased by 6.6 percentage points to 16.9% for the first six months of this year and the cold storage facilities vacancy rate rose by 5.7 percentage points to 41.2% over the same period.

The western area, such as Siheung and Ansan of Gyeonggi Province and Incheon, showed a 20.2% vacancy rate for ambient warehouses and 66.9% for cold storage facilities as of the end of June, respectively, up 8.1 percentage points and 12.4 percentage points for the first six months of this year.

Some cold storage warehouses were transformed into ambient storage facilities in the first half to reduce vacancy risks, such as Gwanyang Logistics Center in Anyang and Jinwoo World Logistics Center in Hwaseong, Gyeonggi Province.

The oversupply has dampened investment sentiment for logistics centers.

Transactions of logistics centers in the Seoul Metropolitan Area reached 2.9 trillion won ($2.1 billion) in the first six months of this year, with a total of 1.4 million square meters of floor area traded.

Given that more than half of the transactions were part of presale agreements, the deal volume in the first-half period is similar to that in the second half of 2023.

Rents remained almost the same in the first half of this year due to an oversupply of properties.

The average rent for ambient warehouses was 10,032 won per square, up 2% in the first half. Rent for cold storage facilities was 18,773 won, a 1.4% increase in the same period.

With challenges such as a sharp increase in supply, intensifying competition to secure quality tenants, construction delays and elevated rates, some investors buy non-performing loans like IGIS Asset Management’s acquisition of Yatap Logistics Center in Seongnam of Gyeonggi Province, the report added.

Write to Eun-Yi Ko at koko@hankyung.com

Jihyun Kim edited this article.