June 1 (Bloomberg) -- Seoul’s Yongsan area, for a century the site of Japanese and U.S. military bases, is set to be remade in a $26 billion project that will add office towers to a city where the vacancy rate is almost 10 percent.
Construction of the development, the biggest in South Korea’s history, is slated to start in the first half of next year and be completed by the end of 2016. With a master design by Daniel Libeskind, the U.S. architect best known for the Jewish Museum in Berlin and New York’s One World Trade Center, it will add 67 buildings for offices, hotels, condominiums and performance halls, as well as parks across the Han River from Yeoui-do, Seoul’s financial district.
The development, 30 percent larger than London’s Canary Wharf, is going up after the economy expanded at the slowest annual pace in almost three years in the first quarter. About 500,000 square meters (5.4 million square feet) of office space is added in Seoul each year, while the Yongsan International Business District project alone will add more than 1 million square meters, said real-estate service company R2Korea.
“It’ll be hard to pack the space,” said Kim Tae Ho, a Seoul-based director at R2Korea. “There’s concern over how they can find local demand to meet the ample supply considering domestic economic conditions.”
South Korea’s economy grew 2.8 percent in the first quarter from a year earlier, the Bank of Korea said on April 26. Construction investment dropped 0.7 percent from the previous three months, the biggest quarterly fall in a year, according to the central bank.
The vacancy rate for Seoul’s offices was 9.2 percent in the first quarter of 2012, after hitting 13.6 percent in the third quarter of 2011, the highest in at least six years, according to data from commercial real-estate broker Cushman & Wakefield Inc. The first-quarter vacancy in Seoul compared with 7.6 percent in Tokyo, 9.4 percent in Singapore and 4.7 percent in Hong Kong, according to the New York-based company.
The project was first approved by the government in 2006, two years after U.S. agreed to move its military base, which is less than 2 kilometers (1.2 miles) from the site.
The 3.8 million-square-meter base, with offices, a hotel, homes and schools for soldiers’ families, used to house almost 10,000 people. The military base will be transformed into a nature park.
Yongsan, a transportation hub and a gateway to the capital for 600 years, also housed the Japanese military base when Korea was under that nation’s colonial rule in the early 1900s. Almost a century of being home to foreign military personnel hampered the area’s development, according to Yongsan’s website.
Yongsan Development Co. was set up to oversee the project, which is backed by 30 public and private companies.
State-run Korea Railroad Corp., which owns the area’s abandoned rail tracks and depots, and Seoul’s city-run housing development company SH Corp. hold a combined 30 percent stake. Private builders and financial investors including Prudential Financial Inc. of the U.S. and Samsung Life Insurance Co., South Korea’s biggest insurer, make up the other 70 percent.
“It’s an unprecedented work,” Libeskind told reporters in Seoul on May 2, when the developer unveiled its final design scheme. “I have no doubt this will be a paradigm shift in the world of urban architect. This will be a new city within Seoul.”
The area will boast an 111-story tower, the country’s tallest, designed by Italian architect Renzo Piano, who is known for the Pompidou Center in Paris, and a boutique office building by Adrian Smith, the architect responsible for Dubai’s Burj Khalifa, the world’s tallest building.
Dutch architectural firm MVRDV last year apologized and partially redesigned twin residential and office towers that had been dubbed the Cloud for a feature that wrapped around the center of the buildings. The feature had been criticized in the U.S. for its resemblance to the fireball that sprung from the World Trade Center buildings in the Sept. 11 attacks in New York.
The entire project will add 67 trillion won ($56.7 billion) to the economy and create 360,000 new jobs, the developer said. Real-estate analysts say construction of the project, which spans an area the size of 48 soccer fields, may need to be slowed so new supply doesn’t increase vacancy rates.
“A mega project like the Yongsan redevelopment will boost the office vacancy rate, which is already high in Seoul,” said Kim So Jin, a researcher at real-estate service firm Kyobo Realco Inc. in the South Korean capital. “I don’t see any foreseeable increase in demand while there’re lots of other high-rise buildings to be added over the next several years.”
Yongsan was one of the main entry points to Seoul’s old city, which became Korea’s capital at the onset of the Chosun dynasty in the 1390s. It housed the city’s main rail station more recently. As the city swelled around Yongsan to be home to almost a quarter of South Korea’s population, with 10.5 million as of March, newer districts developed more quickly.
Seoul’s first skyscrapers sprouted in the Jongno district as the nation’s economy expanded in the early 1970s, when former president Park Chung Hee drove heavy manufacturing-based industrialization. That area is seeing buildings modernized to keep up with newer offices south of the Han river, where Samsung Electronics Co., the nation’s biggest company, and Hyundai Motor Co., its biggest carmaker, are now headquartered.
The Yeoui-do area, across the river from the Yongsan project, features new high-rise buildings that house financial institutions including bourse operator Korea Exchange Inc.
Despite competition for tenants from other areas of Seoul, Yongsan Development is betting global names and high-tech firms will seek out its towers.
“This kind of thing hasn’t happened and won’t happen again,” Kim Chang Dae, vice president of the developer, said in Seoul on May 2. “Some people say risks are lurking in this huge project, but we’re confident this can be successful. This will be able to attract investors from home and abroad.”
To contact the reporter on this story: Seonjin Cha in Seoul at firstname.lastname@example.org