Commercial Real Estate Investment Returns in Gangwon Province Fall to Lowest in the Nation

With the prolonged economic slump, the investment return on commercial real estate in the Gangwon region fell to the lowest level in the nation in the third quarter of this year. The investment return on office buildings was minus 0.34%, below the national average of 1.47%, and mid-to-large-sized commercial properties also came in at just 0.15%, far short of the national average of 0.78%. Investment return refers to the ratio of income earned from money invested in real estate.

Vacant storefronts have been multiplying across Gangwon's commercially dense districts in Chuncheon, with rental listings visible in many locations. Kang Mun-sik, head of the advisory committee at the Gangwon Provincial Association of the Korea Association of Realtors, explained, "As vacancies in commercial buildings increase due to the economic downturn, returns are falling and investment demand is declining."

The direct cause of the decline in investment returns is property values. Commercial real estate investment returns are calculated by combining the income return from rent and the capital return reflecting changes in building values. In fact, the income return on offices in the Gangwon region was 0.72%, higher than the national average. However, a capital return of minus 1.06% dragged the overall return into negative territory. In other words, while rental income was being generated, the decline in building values eroded much of it.

Ham Young-jin, head of Woori Bank's Real Estate Research Lab, said, "With downward pressure on vacancy rates and rents, or a decline in the asset value of commercial properties, a recovery in investment returns will not be easy in the short term."