Musical Chairs in Seoul’s Office Market: Active Movement, Limited Change

Despite vacancy arising from the planned renovation and redevelopment of Hanwha Life’s Taepyeong-ro Building, leasing demand in Seoul continued to be driven by the ongoing flight-to-quality trend, particularly toward newly developed and refurbished office assets. As a result, the CBD vacancy rate remained stable at 5.5% in Q1 2026, largely unchanged from the previous quarter.

Despite active tenant movement across the Seoul office market, overall vacancy and net absorption have remained relatively stable, reflecting a market driven more by reallocation than by changes in underlying demand. Around Seoul Plaza, tenant relocations have accelerated as part of the Sogong District Remodeling Project, under which three major buildings—The Plaza Hotel, Hanwha Building, and Hanwha Life Taepyeong-ro Building—are undergoing large-scale renovations for the first time in approximately 47 years. In this process, Hana Bank’s Project ONE team relocated to its Yeouido headquarters, while Hanwha TotalEnergies partially moved to affiliated buildings, contributing to short-term vacancy increases in the City Hall and Seoul Plaza area. Additional vacancy was also observed in nearby buildings, further reflecting the short-term impact of redevelopment-driven relocations. At the same time, preference for higher-quality office space remains evident.

At Tower 107, new tenants such as K Bank and TKG Huchems have leased space, while Nintendo Korea relocated from a mid-sized office, demonstrating upgrade-driven demand that balances cost efficiency with improved workplace quality.  These movements reflect tenant reshuffling within comparable asset quality tiers, rather than a shift toward lower-cost or lower-quality space.

Meanwhile, Seoul’s CBD is experiencing an acceleration of urban renewal, including office redevelopment, urban regeneration projects, and large-scale renovations of aging buildings. Jongno District Office relocated temporarily to The K-Twin Towers in 2025 ahead of its new integrated government complex development with Jongno Fire Station on the existing site. In addition, projects such as the Korean Re headquarters redevelopment and Susong District regeneration are progressing, gradually increasing tenant relocation activity across the CBD. These redevelopment-driven relocations are contributing to short-term fluctuations in vacancy.

Recent trends also indicate a reshuffling of tenants among prime office buildings. Encar.com relocated from AIA Tower to Grand Central, while Hanwha Ocean moved from Grand Central to Daishin Finance Center, resulting in vacancy being redistributed across these assets rather than newly created.

Looking ahead, new office supply in the CBD is expected to be delivered in phases across key redevelopment clusters, including Seoul Plaza, Gwanghwamun/Jonggak, Euljiro 3-ga, Sewoon District, and Seoul Station. In addition, potential consolidation by SK Group affiliates could further influence the CBD office market.

SK On has decided to relocate from Jongno Tower to SK Seorin Building, while SK Ecoplant, currently occupying Twin Tree Tower B, is considering a move to its new headquarters in Yangpyeong, scheduled for completion in 2027.  Such relocations by large occupiers could act as a potential source of future vacancy and may contribute to upward pressure on vacancy rates.

Timeline of CBD Redevelopment & New Supply Clusters by Submarket

Gangnam Business District (GBD): Rising Rental Pressure Drives Cost-Efficient Relocations and Increased Remodeling-Led Repositioning

In Q1 2026, the GBD office market maintained a relatively resilient performance, supported by stable leasing demand amid limited new supply. The vacancy rate remained stable at 2.2%, largely unchanged from the previous quarter, reflecting balanced market conditions.

Demand continues to be driven by IT, gaming, and platform companies, while additional demand has emerged from consumer-facing sectors such as K-beauty and fashion, particularly through headquarters consolidation. Although some IT firms are reportedly considering relocation to Seongsu to mitigate rising rental costs in Gangnam, tenant preference for core GBD locations remains firm.

Notably, along Teheran-ro, the Seoul Metropolitan Government has designated a “Refurbishment Promotion Zone” covering approximately 950,000 sqm from the intersection of Gangnam Station to POSCO. Under this initiative, office buildings aged 15 years and above are eligible for incentives such as up to a 30% increase in gross floor area. As a result, renovation activity in aging office stock is expected to gradually expand.

Over the medium to long term, such remodeling is likely to increase the supply of more competitive mid-tier office space and facilitate asset recycling within the Gangnam office market. Most refurbishment activity is focused on upgrading older or lower-tier assets into more competitive mid-tier space, rather than repositioning them into trophy or prime assets. Importantly, such upgrades do not necessarily result in Class A or A+ buildings. However, they still play a meaningful role in enhancing asset competitiveness and narrowing the gap with higher-quality buildings.

Investment activity also remains active, as evidenced by forward purchase transactions in Yeoksam-dong, indicating continued investor interest in core assets.

Meanwhile, the approach to urban renewal differs between Seoul’s major office submarkets. In the CBD, new supply is primarily driven by large-scale redevelopment projects such as those in the Sewoon District and the Gongpyeong/Seorin areas. In contrast, the GBD is increasingly characterized by asset enhancement through remodeling, particularly along Teheran-ro. As tenant preference for prime office space persists, the competitiveness gap between remodeled assets and older office stock is expected to widen, reinforcing market polarization.

The flexible office sector may also emerge as a potential variable. Since entering the Korean market in 2017, WeWork has accumulated several long-term lease agreements, many of which are now approaching expiration. Given that many of these master lease contracts were signed during a tenant-favorable market cycle, the potential for restructuring is greater. As the pace of expansion in the flexible office sector slows and some operators scale back, space reductions could occur at lease renewal.

However, the recent vacancy observed at WeWork Tower, (formerly PCA Tower) in Gangnam is not attributable to WeWork’s exit, but rather to the relocation of Hyundai Motor Group, which had previously occupied a significant portion of the building. This highlights how corporate tenant movements can drive vacancy at the building level, independent of flexible office dynamics.

Nonetheless, as leases for flexible office operators continue to expire, some degree of space adjustment may occur across certain locations. This could introduce hidden supply into the Seoul office market, a trend to monitor closely going forward.

Market Implications

In Q1 2026, the Seoul office market exhibited divergent trends across submarkets. In the CBD, tenant relocations increased as redevelopment and large-scale renovation projects accelerated, leading to short-term fluctuations in vacancy. In contrast, the GBD maintained stable market conditions, supported by limited new supply and continued tenant preference for prime office assets. However, rising rental pressure in Gangnam is prompting some occupiers to consider relocation to other submarkets as part of cost-efficiency strategies.

Meanwhile, the Yeouido Business District (YBD) experienced a temporary increase in vacancy due to the movement of large tenants, although its demand fundamentals remain solid, underpinned by its role as Seoul’s primary financial district.

Notably, urban renewal activity across Seoul—focused on redevelopment and remodeling—is further reinforcing the structural differentiation between submarkets. The CBD is characterized by redevelopment-driven new supply, the GBD by asset enhancement through remodeling, and the YBD by gradual development supported by its role as a financial district. Together, these submarket-level dynamics suggest that the Seoul office market is undergoing a structural realignment, with current trends reflecting more than just cyclical fluctuation.

These trends reinforce that current market dynamics are driven by reallocation toward higher-quality assets, rather than any structural increase or contraction in overall demand.

For occupiers, this implies a greater focus on consolidation and efficiency, with a preference for fewer, higher-quality locations. For landlords, particularly those holding older assets, maintaining competitiveness may require repositioning or refurbishment strategies.

In this environment, the ability to upgrade and reposition existing assets will be critical to sustaining leasing performance.