As the 'supply drought' in the Seoul officetel market deepens, expectations for market recovery are growing within the construction industry following news of eased officetel balcony regulations.
According to Real Estate R114 on the 29th, there were no officetels sold in Seoul in the first quarter of this year. In the first quarter of last year and in the first quarter of 2023, 710 and 544 units were supplied, respectively, but there were no units this year.
The supply of officetels in Seoul has been declining for six consecutive years. After exceeding 20,000 units in 2018 at 20,451, it dropped to 17,686 units in 2019 and 14,676 units in 2020.
In 2021, it fell below 10,000 units to 9,345, and in 2022, it decreased to 3,502 units, finally shrinking to 1,621 units in 2023. Last year, the supply was only 1,411 units, marking six consecutive years of decline.
The reduction in officetel supply in Seoul is attributed to the decline in the real estate market, causing stagnation in the real estate project financing (PF) market and leading to liquidity issues for construction companies.
Yoon Ji-hae, the senior researcher at Real Estate R114, noted, "Unlike apartments, which are residential products for capital gains, officetels are revenue-generating products," and explained, "Investors need to be mindful of many factors such as vacancy risks, management issues, and whether adequate revenue can be secured, making them sensitive to economic fluctuations such as interest rates." Yoon added, "The absence of officetel supply in the first quarter of this year is indicative of the fact that many construction companies could not begin selling officetels due to difficulties in financing PF funds."
The Seoul city government has initiated regulatory easing to revitalize officetel supply. On February 25, the criteria for installing officetel balconies were abolished. Previously, since May of last year, Seoul had required officetel balconies to have a minimum effective width of 0.8 meters and restricted window installation on balcony outer frames. Balconies were also permitted only on floors 3 to 20. All these regulations have now been lifted. However, since officetels still fall under the business facility category in the Building Act, expanding balconies like those in apartments is not permitted.
In the construction industry, there are reactions that the easing of balcony regulations will lead to some improvement in project feasibility, allowing the previously sluggish supply of officetels in Seoul to enter a recovery phase.
A construction industry official said, "The easing of regulations regarding officetel balconies is like a breath of fresh air for construction companies poised to launch sales," adding, "In the Seoul real estate market, the presence or absence of a balcony creates a noticeable difference in space for residents, which also affects prices." He also stated, "In the coming years, the supply of apartments in Seoul is expected to be limited, and with the increase in one- to two-person households, the previously stagnant officetel market in Seoul will start to recover, focusing on smaller-sized units."