JLL advises on sale of Seoul’s Jongno Tower to SK REITs

Seoul, October 28, 2022 – Global real estate services company JLL today announced that it successfully completed the sale of Jognno Tower, Seoul. JLL acted as joint exclusive sale advisors with Avison Young Korea to KB Asset Management on the tower located at 51 Jong-ro, Jongno-gu, Seoul.

The asset was sold by KB Asset Management for KRW621.5 billion ($431.7 million) to SK REITs. The transaction price translates into KRW10.3 million (US$7.1 thousand) per square meter. KB Asset Management purchased these assets for KRW 463.7 billion ($321.6 million) in 2019 by setting up KB Wise Star Jongro Tower Real Estate Investment Trust, which was funded by KB Financial Group Blind Fund and KB Securities as major investors. The liquidation of the fund is expected to take place starting in December 2022.

Completed in September 1999, the 33-storey Jongno Tower is an office landmark building with a total floor area of 60,601m2 located in a central business district of Seoul where headquarters of Korea's leading conglomerates and foreign companies are concentrated. Jongno Tower is the high-quality prime office asset with a stable rental income with 99% total rental rate. Affiliates of SK Group, the second-largest conglomerate in Korea, lease 46% of the total area and use it as a strategic office (SK Green Campus) for environmental and energy businesses. In addition, various blue-chip tenants such as McDonald's and Meritz Fire are leased to Jongno Tower.

Chaehun Chang, Managing Director of JLL Korea said, "Jongno Tower sale is a remarkable achievement amid the financing difficulties from continuous interest rate hikes and increasing economic uncertainty in the second half of 2022. This is a testament to the unwavering demand for investment in landmark locations and JLL is proud to have advised on this marquee transaction."

Donghun Shin, Managing Director of Real Estate Management Division at KB Asset Management said, "Immediately after setting up this fund, we were hit by Covid-19, which impacted leasing demand for office and increased rent arrears due to the deterioration of the performance of major tenants. We sought for various ways to solve these adverse effects and ultimately attracted SK Group as alternative tenants and were able to improve the asset value of Jongno Tower. Despite the capital market shocks caused by the recent economic crisis, the sale was successfully completed at the right time."

While the recent steep rise in interest rates has put pressure on domestic investors for commercial real estate transactions, the potential for A-grade offices is likely to increase due to low vacancy rates and rising rents. Investors are expected to select assets strategically, driven by location or condition of the asset.

The CBD district in Seoul, where Jongno Tower is located, has seen a sharp decline in vacancy rates in recent years, and effective rents have risen significantly since 2021. Due to the shortage of A-grade offices in the entire business area of Seoul and the delay in the supply of offices due to the delay in development PF, it is expected that the Seoul office market will continue to maintain a low vacancy rate from a mid- to long-term perspective.