Large discount stores and department stores, which had been located in the most vibrant areas of local governments, are becoming burdensome. This decline is attributed to a decreasing population and a persistent low-growth trend, leading to a phase of local extinction.
Mediocre offline retail stores are facing a situation where they cannot be competitive. As sales decline, aggressive investment is not possible, resulting in a vicious cycle where product assortment competitiveness naturally falls. Therefore, even trying to sell real estate is not an easy task.
According to industry sources on the 6th, as some businesses operate, they incur losses, prompting retailers like Lotte Shopping to initiate land sales. However, this is also not easy. The responses from real estate development companies or real estate funds are tepid. This situation is markedly different from a decade ago when department stores or discount stores were viewed as valuable real estate situated in prime locations. Back then, there was a more proactive approach in purchasing department or discount store sites in a sale and leaseback format to secure prime locations.
An asset management industry official noted, "The situation has changed a bit now," adding, "There are many concerns about how to utilize the space after the retailer leaves. Especially if commercial facilities are removed, there tends to be strong opposition from local residents, increasing development difficulty, and the local retail sites are not as valuable as they were in the past."
For instance, the transaction for a Homeplus store in Seoul's Sindae-dong was finalized on the 7th of last month. The transaction amount was 523 million won. The 1,813-pyeong lot was sold for 28.85 million won per pyeong. The buyer, E-Land Construction, plans to develop it into rental housing due to its proximity to Bonghwasan Station on subway line 6, which offers convenient transportation. However, backlash from nearby residents has already started to emerge, as a banner stating opposition to the construction of rental housing has appeared at a nearby intersection.
This is because nearby residents are reluctant to see the convenience of having a discount store disappear. An asset management industry official said, "Even those who didn't often visit the facility might find it inconvenient if the convenience facilities decrease, and ultimately, they expect housing prices to drop," adding, "As complaints from residents increase, local councilors will inevitably add their voices, making it difficult for buyers to utilize the land as planned."
The Hyundai Department Store D-Cube City branch in Seoul is a similar case. After ten years since its opening, the D-Cube City branch will close. The building's owner, Aegis Asset Management, plans to change the building's usage from retail to office space. This means the department store will be replaced by offices or officetels.
As this plan became known, nearby residents began to voice collective complaints because they believe the living environment could change significantly. Ultimately, Aegis Asset Management withdrew its request for a building use change from the Guro District Office. They plan to revisit the proposal after communicating with the residents. Industry insiders say they have entered a phase of calming residents' sentiments.
Many predict that the transaction for the Lotte Department Store Ilsan branch will not be easy either. Currently, the property owner of the Lotte Department Store Ilsan branch is KB Asset Management. In 2014, Lotte Shopping sold the building to KB Asset Management's real estate fund and has been operating under a sale and leaseback arrangement. KB Asset Management is pursuing the sale of the store after owning it for over a decade. Daehan Land Trust was selected as the preferred negotiator.
The asset management industry sees the sale of the land to Daehan Land Trust as difficult. Originally, the preferred negotiation period was at the end of last year, but this period has been extended by three months due to issues related to property possession. Since the Lotte Department Store can operate until 2034, the closure issue must be resolved first before transferring ownership. The asset management industry anticipates that numerous complaints from residents will arise during this process.
An asset management industry official said, "If complaints pour in, it may be possible to resume redevelopment only after allowing a grace period of two to three years for calming fears," and added, "However, this would be difficult from the perspective of the developer."
A representative from a large real estate development company stated, "Now, we tend to view the purchase of discount store or department store sites more conservatively," noting, "Even if they are non-profitable stores, opposition from residents is stronger than expected, and if we want to build officetels, resistance from residents is even more intense." Another representative from a different development company remarked, "The complexities of permitting changes in usage can greatly increase," adding, "From the developer's perspective, delays pose the biggest risk."