[RSQUARE] 2024_Q2 Office+Knowledge Industry Center Sales Index Report_ENG

Office - Knowledge Industry Center 2024 Q2 Sales Index Report RSQUARESA Office - Knowledge Industry Center Contents Methodology

Office Index

Knowledge Industry Center Index Transaction Volume Index Comparison 1 : Office vs Knowledge Industry Center Index Comparison 2 : Macro vs Office

Methodology Sales Index

• The office sales index was formulated using the repeat sales model which s also

applied in calculating the Case/Shiller Home Price Index in the United States.

• The repeat sales model tracks the price changes of properties that have been sold

at least twice, dividing the appreciation rates appropriately over different time periods.

• To supplement the limited availability of data, the MIT Center for Real Estate's

(MIT/CRE) two-stage estimation method is also utilized in the calculation. Cap. Rate

• The cap rate has limitations as a stable indicator due to the small number of

transactions, particularly in cases involving corporate headquarters or development projects, where there may not be any rentalincome. Even when using quarterly averages, creating a reliable index is challenging.

• Toaddress this, the cap rate index was calculated using a Bayesian model, which

has recently been employed for developing stable indicators. The model assumes that the difference between the previous quarter and the current quarter follows a normal distribution under a random walk hypothesis. Misc.

• The sales index and cap rate were calculated using actual transaction data derived

from RSQUARE's use of registry records, among other sources. The following references were used for data construction and modeling:

• Hwang, Kyuwan & Son, Jaeyoung (2017). "A Study on the Calculation of the Seoul

Office Price Index Using the MIT/CRE Two-Stage Estimation Method," Housing Studies, 25(1), 151-175.

• Ryu, Kangmin & Song, Kiuk (2020). "Development and Pilot Application of the

Benchmark Price Index for Seoul Offices Using the Repeat Sales Model," LHI Journal, 11(2), 33-46.

• Ryu, Kangmin & Song, Kiuk (2023). "Development of the Knowledge Industry Center

Price Index and Analysis of Macroeconomic Factors in Seoul," Real Estate Analysis, 9(1), 253﹣270﹒

• Kwon, Minseong; Choi, Woohyun; Song, Youngsun; & Lee, Changmoo (2022).

"Development of Apartment Complex Price Indices Based on Actual Transaction Data Using Hierarchical Bayesian Inference," Real Estate Studies, 28(4), 39-54. Office |ndex ﹢AsofQ2 2024, the sales index stood at 477.1 points, reflecting a 4.77x increase from Q12001. This represents a 0.3% rise from the previous quarter (Q12024) and a 1.7% decrease compared to the same quarter last year (Q2 2023) ﹢TheSeouloffice sales index showed strong growth with annual increases of over 13% from 2001 to Q3 2008, followed by a 12% drop post-global financial crisis in Q3

• From 2010 to 2017, the index saw steady growth of around 3% annually.

From 2018 to Q3 2022, the index surged by over 10% annually but has since stagnated.

• Prices surged significantly in 2020 and 2021 due to favorable investment conditions

driven by low interest rates despite the COVID-19 pandemic. In 2022, the upward trend continued, supported by strongtenantdemand and rising rental rates, even amidst consecutive interest rate hikes, with the market reaching its peakin Q3 2022. However, since Q4 2022, prices have stagnated, and transaction volumes have significantly decreased compared to previous levels.

• This year, the continued stagnation of prices combined with rising rental rates has

led to anincrease in the cap rate spread. Additionally, if interest rates decrease further, thereis potential for price increases. == Seoul Office Sales Price Index (2001.1Q=100.0) 哲 QoQ 600 50% 40% 30% 20% 10% % 闡 ‵ |_.|||I_| (| 비 기 圖 | ‧Iˍ 1 h ﹣ Ll ||I.II||I|. L. , |I'|"'I " 1 v 【 1 -10% -20% 2Q4Q2Q402Q4Q2Q4Q2Q4Q2Q4Q2Q4Q2Q4Q2Q4Q2Q4Q2Q4Q2Q4Q2Q4Q2Q4Q2Q4Q2Q4Q2Q4Q2Q4Q2Q4Q2Q4Q2Q4Q2Q4Q204Q2Q 02 03 04 05 '06 07 08 '09 10 M 12 13 M4 15 16 17 18 19 20 21 22 '23 ‘24 Knowledge * In Q2 2024, the knowledge industry center sales index stood at 200.1 points, marking a 2.00x increase from Q 2011﹒ However, it showed a 5.7% decrease Industry compared to the previous quarter (Q12024) and an 11.3% decrease compared to c ent er the same quarter last year (Q12023). Unlike the office market, the impact of interest rate hikes on price declines has been more pronounced. Index * From 2011 to 2019, knowledge industry centers showed a stable annual growth rate of around 3.0%. However, from 2020 to Q2 2022, they experienced an annual increase of over 20%, indicating a higher growth rate compared to offices.

• The significant price increase in knowledge industry centersis likely due to the

favorable investment environment, where they require less capital compared to offices, making them accessible for individual investors. Additionally, they face fewer restrictions, such as loan regulations, compared to residential properties.

• The knowledge industry centers, which had shown significant price increases until

Q2 2022, began to decline from Q3 2022, dropping by upto 20% from their peak by Q22024. == Seoul Knowledge Industry Center Price Index (2010.1Q=100.0) & QoQ 300 50% 250 40% 200 30% 150 20% 100 10% 50 | T _-I_,._II-I.lIlI 0% 0 -10% office and * The transaction volume for Seoul offices, including Bundang, has steadily increased since the global financial crisis, exceeding 10 trillion KRW annually starting from 2016. Knowledge 11 2021, the highest transaction volume was recorded, surpassing 17 trillion KRW. |ndust|'y ˙However due to the burden of higher loan costs and declining yields resuiting from interest rate hikes, investment in offices has decreased since 2022﹒ In the first half center of 2024, the transaction volume, based on the year of final payment, stood at 4.1 Transactlon '(I1||I0!’] KRW, m中c煞mg a 【1(鑒C|ˊf‧隻﹛…]Se comparedtothe same period last year and a v ˍ continued declinein transactions. olume * Since 2015, knowledge industry centers have seen transaction volumes exceeding 1 trillion KRW annually, with 2021 recording the highest at 1.7 trillion KRW. However, similar to the office market, transaction volumes began to decline from 2022 due to the impact of interest rate hikes. In the first half of this year transaction volumes hgveincreased compared to the same period last year, likely due to a higher number of sales resulting from price reductions. *Contract date reflects the point when new investments ocour,offering a bettier alemative o fing payment date in understanding the new investment trend. Seoul/Bundang Office Seoul Knowledge Industry Center Transaction Volume (Trillion KRW) Transaction Volume (Trillion KRW) g Final Payment ® Contract Signed g Q1 g Q2 g Q3 ﹍ Q4 20 2﹒0 18 18 o o IS N 16 16 14 14 12 12 1.0 0.8 0.6 0.4 | 열 은 《 개 H , Index * Knowledge industry center marketis complementary to offices due to several factors: 1) lower rental costs, 2) able to be used as office spaces 3) located in Comparlson 1 surrounding areas such as Gasan, Guro, Magok, Songpa, Yeongdeungpa, and . Seongsuy, rather thanin the three core office districts. . Offi ce vs ﹢The pricetrendsofoffices and knowledge industry centers have shown similar patterns. Until 2019, the average sales price increase for knowledge industry Knowledge centers was lower than that of offices. From 2020 to Q2 2022, however, knowledge industry centers saw higher sales price increase compared to that of offices. Industry

• The significant price increase in knowledge industry centers seemed to be affected

center more by the shift in investment demand for housing, driven by low interest rates and housing regulations, ratherthan an increase in tenant demand. Unlike offices, which typically require large amounts of capital due to single-ownership, knowledge industry centers allow fractional ownership, making them accessible to individual inVestors﹒Staying immuneto housing regulations was a plus.

• As aresult, knowledge industry centers saw a record-breaking annual price increase

of over 20% from 2020 to Q2 2022﹒However due to factors such as interest rate hikes, recent price has declined as low as 20% from the peak. The higher price volatility of knowledge industry centers and that of offices is largely due to an investment-centric demand than from tenants. == Seoul Office Sales Price Index == Seoul Knowledge Industry Center Sales Price Index 灶 忍 Index Office Index vs GDP, Interest Rate 4 ‧GDPisa productivity indicator for a country and is closely linked to office investment compa"son 2 and tenant demand. The scale and production of goods are determined within office . spaces, and the resulting profits drive capital investments in facilities. Macro VS * When examining the correlation between the office index and GDP, both shows an off- upward trend; however, the gap is seen notably before the global financial crisis in 106 2007 and again after 2019.

• In 2020 and 2021, the rate of increase in the office index exceeded the growthin

GDP. This is believed to be due to the positive effect of low interest rates on investment sentiment, despite GDP stagnation from COVID-19. « From 2001 to Q2 2024, the correlation coefficient betweeninterest rates and sales prices was -0.63, indicating a strong inverse relationship. However, in 2022, despite interestrate hikes， prices continued to rise, imposing a significant burden on investors. Such trend was also observed before the global financial crisis. 《 Seoul Office . Nominal 5-Year Period of Simultaneous Increase in Sales Price Index GDP Treasury Bond Interest Rate and Index 600 10% 9% 8% 7% 6% 300 5% 4% 3% 《 一 2% 100 ﹣ ﹍ 1% 0% 1Q3Q1Q3Q1Q3Q103Q1Q3Q103Q1Q3Q1Q3Q1Q3Q1Q3Q1Q3Q1Q3R1Q3Q103Q1Q3Q1Q 3910 3010 39 03010 3010 3910 39010 3010 01 '02_'03 '04 ‘05 '06 07 '08 09 10 1 2 13 14 15 6 17 18 19 '20 21 22 23 34 Index Comparison 2

Macrovs Office

Office Index vs Cap﹒ Rate

• The cap rate, which reflects the relationship between Sales prices and rentalincome,

shows an inverse relationship with sales prices. The cap rate decreased from 12﹒8% inQ1 2001to4﹒7%inQ 2024, a drop of 8.1 percentage points, while sales prices increased from 100.0in Q12001 to 477.1in Q2 2024, a 377% rise. It was observed that for every 10% increasein sales prices, the cap rate decreased by 0.22 percentage points.

• The cap rate has been on a continuous downward trend but began to rise in Q4

2022 due to interest rate hikes, coinciding with a decline or stagnation in prices. The cap rate increased from 4.0% in Q4 2022 to 4.7% in Q2 2024.

• Due to the stagnation of prices caused by high interest rates and the continued

increase in rental rates driven by a strong rental market, the cap rate is expected to continue rising for some time.

• Additionally, while the cap rate spread has historically ranged between 250 to 300

basis points from 2010 to the recent past, the spread in Q2 2024 was around 120 basis points, indicating that the cap rate is likely to increase further. == Seoul Office Sales Price Index (2001.1Q=100.0) == Seoul Office Cap﹒ Rate 15% 13% 11% 9% 7% 5% 3% 1Q3Q1Q3Q1Q3Q1Q3Q1Q3Q1Q3Q1Q3Q1Q3Q1Q3Q1Q3Q1Q3Q1Q3Q1Q3Q1Q3Q1Q3Q1Q 3Q1Q3Q1Q3Q1Q3Q1Q3Q1Q3Q1Q3Q1Q3Q1Q 0 02 0a 04 05 96 07 08 09 0 M M2 M3 4 15 ﹍ 16 17 18 19 ﹍20 21 22 23 '24 Research Center Kangmin Ryu Hyejin Jung Taejin Ahn Kyujeong Choi Center Director Senior Manager Manager Manager locsword@RSQUARE.co.kr hyejin@RSQUARE.co.kr steven6ko@RSQUARE.co.kr kyu.choi@RSQUARE.co.kr The intellectual property rights to the information provided in this report (including graphs, tables, etc.) are owned by RSQUARE. Unauthorized copying or distribution for commercial purposes without prior permission may result in legal action. RSQUAREsH