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May 17, 2016

The South Korean capital, Seoul, is poised to challenge the existing ‘Big Six’ fully established and mature leading global cities – those that combine scale of business and investment activity with quality, appeal and cultural depth.

JLL’s recent ‘Benchmarking the Future World of Cities’ report shows Seoul’s rising star, alongside Shanghai and Sydney, poised to join the established ‘Big Six’ – Hong Kong, London, New York, Paris, Singapore and Tokyo. The report details Seoul’s rise across multiple city benchmarking indexes.

But how did this unheralded city rise to prominence, can it continue on this pace, and what does its ranking mean for property investors?

JLL’s report says Seoul’s rise came on the back of highly successful domestic firms with global reach, a strong education policy, and a shift to quality-oriented growth.

Five key benchmarks justify its place next to the existing ‘Big Six’, the report says – Seoul is:

  1. Among the 10 most important global business hubs
  2. In the top 20% for human capital
  3. In the top 10 for university quality and reach
  4. Among the top 15 most visited cities
  5. Rated in the top 15% for transport infrastructure and global connectivity

“Seoul has the second largest GDP of any city in Asia, it is the hub for business in Korea and also home to major international companies such as Hyundai, Samsung and LG,” says Steven Craig, JLL’s Country Head, Korea.

“It has one of the most well educated populations in the world with very high university graduation rates. Half of Korea’s population live in the greater Seoul metropolitan area and it is the hub for all business, education, political and cultural activities in Korea.”

Seoul’s rise to prominence as a global city is reflected in the recent performance of its property market.

Although investment volumes for the calendar year were down for the 2015 calendar year, they had jumped to USD$2.3 billion in Q4 2015, a lift of 25 percent from the Q3 result. The majority of sales were posted in Seoul.

Seoul’s investment volume dip in 2015 appears to be a hiccup, and it remains one of the top destinations in the region for investment – JLL’s recent Asia Pacific City Investment Intensity Index report places Seoul third for annual direct real estate volumes, posting a three-year rolling average of $9.1 billion, second only to Tokyo and Singapore.

Seoul is also in the top 20 of JLL’s 2016 City Momentum Index, which ranks cities by the strength of their economies, long-term fundamentals and real estate market metrics, including construction, absorption, price movement and cross-border capital flows.

The forward outlook for Seoul is also promising – property markets in the capital are maturing, and a recent wave of supply has brought significant international-quality stock to the market.

“The Bank of Korea estimates economic growth of 2.8 percent for the country, even though global economic conditions are difficult,” Craig says. “Comparatively, conditions in Korea are supported by solid domestic demand, high employment and low inflation despite the potential impact of slower global growth on Korea’s strong export sector.”

However, there are some short-term red flags for Seoul, the biggest being Korea’s relationship to the Chinese economy. China accounts for 28 percent of all exports from South Korea, and exports account for half the South Korean GDP, so any downturn in the Chinese economy has an impact.

However, for real estate investors with a medium- to long-term view, Seoul could be very appealing.

“Our expectation is for investment markets to swing more in favour of buyers over coming quarters, reflecting the very strong levels of stock entering the market for sale as well as lingering economic concerns,” Craig says.

“Over the short to medium term, capital values are likely to be flat or fall. The logistics and hotel sectors should develop further, although there may be near term pains created by oversupply, while e-commerce is likely to continue to boom, aided by the most wired population in the world and with domestic players competing aggressively for market share.”

For Seoul to retain its new status amongst the leading global cities of the world, it must unshackle the traditionally strong links between big business and politics, and continue driving towards a services- and entrepreneur-driven economy, Craig says.

“Korea’s structural transition in its economy from export-oriented to service-oriented will benefit Seoul immensely, as it is home to a highly educated population,” Craig says.

“Likewise for the property sector, strong conglomerate ownership of major real estate assets needs to ease. However, recent restructuring by Samsung indicates that this trend may be changing and more conglomerates are likely to offload all but non-core real estate, which should create opportunities for investors.”

Click here to read the full Benchmarking Future World of Cities Report 

Steven Craig
Country Head, JLL Korea

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