7 Oct 2011 Impact Tourism Industry on Seoul Real Market

Estate

ABOUT SEOUL
South Korea has come a long way. Six decades ago, the country was ravaged by war and in need of international aid. Now it has the means to offer aid to other countries. It is ranked 16 th in global GDP output and Asias fourth largest economy after China, Japan and India. Seoul ranks among the top ten global cities according to the Global Cities Index 2010. In 2008, Forbes ranked this leading global city as the worlds sixth most economically powerful city. It is one of the world top ten financial and commercial centers, home to major multinational conglomerates such as Samsung, LG, and Hyundai-Kia. The transportation system is efficient with the worlds third largest subway capable of carrying 200 million passengers every year. Seoul Station, a major railway station, houses the 350 km/h KTX bullet train, capable of delivering frequent high-speed, express and local services to various points in South Korea. AREX is the railway line that links Seoul with Incheon International Airport, rated as the best airport in the world by Airports Council International. South Koreas unique culture, stemming from the domestic language and influence of Confucius teaching, sets Seoul apart from other global cities like Hong Kong or Singapore. Koreans are not as affluent in English, however, the fact that all Korean speak and write the same language has been a crucial factor in building its identity. The Korean Won has been relative weak. Export constitutes half of the economic output, thus the South Korean government is incentivize to keep the Won undervalued against the currencies of major trading partners. According to Purchasing Power Parity, the Won is 30% to 40% undervalued as compared to the dollar and Euro. The combination of distinctive culture, advanced infrastructure, unique social structure, a dynamic open economy and a relatively cheap currency invites a growing annual inflow of tourists to Seoul. In addition, the export-oriented environment coupled with a top tier financial and commercial center has attracted foreign businesses. To house the increasing business development and to support the continuing influx of tourists has a significant direct impact on the domestic commercial real estate market. The rest of the report will details our REMA on the hospitality and retail sectors of the Seoul Real Estate market.

1. Introduction
Tourism industry in the world
Size of Tourism Market and its Potential According to The World Trade Organization (UNWTO) in 20111, tourism is ranked as fourth after fuels, chemicals and automotive products in the global export category. The size of the tourism industry in the world increases from USD 5.7 trillion USD in 2010 to USD 10 trillion in 2011. This translates to an annual increase of 6.9%. In addition, the number of the tourist is expected to increase from 940 million to 1.6 billion. The number of people who go on an overseas trip is increasing by 170% every year. With the improvement in the overall standard of living in the world, people are getting affluent and have greater monetary ability to travel overseas. Profitability of Tourism Market in the World Tourism has been considered the surviving strategy of the aging countries as well as the easiest way to accumulate foreign currency. The most fascinating facet of tourism is that it allows people to work even if they are old. Furthermore, it generates about 22.9 new job positions every time the tourists spend USD 1 billion in the country, which is twice the rate compared to that of other industry average. In many developing countries, tourism is one of the main sources of securing foreign currency as it creates 83.3 cents out of every USD 1 spent. Considering 56.3 cents in manufacturing and 67.4 cents in the industry average, we can easily comprehend why many counties in the world are dedicating their efforts to promote its tourism sector.

Tourism in Korea
Demographics of Foreign Visitors The number of the foreign visitors in Korea has consistently increased from 5.8 million in 2004 to 8.8 million in 2010. Especially since 2008, it has increased by more than 12 percent every year, and is expected to continue to rise. It can be considered dramatic considering the number of foreign tourists increased only by 3.9% in 2002 when Korea-Japan Olympic was held. (Table 1.1) Meanwhile, the major of nationalities of the visitors turned out to be Asian countries. (Table 1.2) In 2010, 34.36% of visitors were from Japan, 21.31% from China, 7.42% from USA, 4.61% from Taiwan. The remarkable feature is that the number of Chinese visitors has increased by more than 50 percent every year since 2008. (Table 1.2, 1.3) Among the whole, more than 90% of the visitors in Korea appeared to visit Seoul. In the meantime, the number of visitors at the age under 30 has continuously increased. It can be considered that students have increasingly chosen Korea as a destination for the study trip. Visitors at the age between 21 and 40 have accounted for more than 55% out of the entire population. It can be interpreted that, thanks to the popularity of Soap operas and pop music of Korea, people interested in them have increasingly visited Korea. On the other hand, the number of the visitors at the age over 60 has continuously decreased. Preference of Foreign Tourists Notably, more than 70% of foreigners visited Korea as tourists. According to the survey conducted by the Ministry of Culture, Sports, Tourism2, 40.6% of foreign tourists responded that the main purpose of the trip to Korea was to experience Korean Fashion and Culture portrayed in Korean pop music, movies, and soap opera. The result of the survey reflects the cause of soaring number of tourists, a figure which used to be less than 15%. Foreign tourists stayed 4.7 days in Seoul out of 7.7 days in Korea on average. (Table 1.7) In addition, the favorite destination among foreign tourists was Myeng-dong(55.1%), followed by Namdaemun Market(47.3%), Dongdaemun(42.3%), and Seoul Plaza. (18.7%) (Table 1.8) The survey also indicates that the activities of foreign tourists appeared to be visiting historical sites such as Gyeongbok Palace, where 70% of tourists visited, and it is followed by shopping, 64.6%; visiting famous restaurants, 36.7%; and visiting entertaining spots such as clubs, 13.4%. (Table 1.9) The favorite shopping place appeared to be airport (43.8%), followed by Myeongdong (42%), Namdaemun (32%), and Department stores. (31.9%) (Table 1.11) This implies that tourists preferred to go shopping in Seoul. The statistic states that the popular items in shopping mall is clothes (41.9%), perfume (37.7%), and food (34.3%) (Table 1.10) 1
UNWTO Tourism Highlights 2011 Edition

2 Annual Report on Tourism 2010, Ministry of Culture, Sports, and Tourism, Korea

This seems to prove the potential of Seoul as a shopping hub. Tourists seem to be interested in Korean culture seem to assimilate them to the culture by following fashion. 65.4% of respondents answered that stayed in hotel. (65.4%) (Table 1.12) However, we cannot simply forecast the rosy future of Seoul as a shopping mecca. There are other big mountains to the center of tourism. Contrary to the number of the tourists, the expenditure per tourist has decreased from $1,203 in 1990 to $1,108 in 2010, namely that the profitability of tourist industry has been stagnant. (Table 1.13)3 According to the report of UNWTO, degree of kindness to foreign tourists in Korea was ranked as 125th out of 139 countries, and quality of service of the accommodations took up 101 st in contrast to the 5th-ranked cultural heritage and the 18th-ranked transportation. The economic contribution of the tourism sector plays a vital role in the Koreas economic outlook. In this report, we will analyze the key drivers that have shaped the hospitality real estate market in Seoul.

2. Hospitality Market in Korea

Demand side
The increase number of the tourists, we mentioned above, can be referred to as the benchmark to estimate the demand in accommodations. In 2010, Seoul government announced that deficiency in hotel rooms in Seoul exceeded 10 thousands and is expected to increase by 16 thousands until 2012. (Table 2.1) In terms of the number of the tourists

Supply side
Supply of accommodation seems to be delayed despite the needs from the foreign tourists. In 2010, the number of the existing hotels in Seoul is 139, according Seoul government. It is estimated that 26,000 hotel rooms are located in Seoul in 2011. In spite of the growing popularity as a tourist spot and the lack of accommodations, only 6 and 2 new hotels started building up in 2009 and 2010 respectively. (Table 2.2) Occupancy rate of 5-star and business hotel in Seoul became up to 90 to 95 percent. Private Sector As a result, the private sector sensitive to the market, including investment companies and hotel chains, already started reacting to the trend. Five hotel projects in the downtown was permitted to construct in the first quarter of 2011, four time faster rate compared to the past two years. To be specific, 34 hotel construction projects, mainly business hotels, are on-going. Those hotels are being built up across Seoul. For example, Sheraton Group is erecting a hotel in D-cube city in Shillim-dong, South-western part of Seoul. Walker Hill acquired Cheonggiwa Gas Station in Donggyo-dong located in CBD and is supposed to complete setting up a hotel by 2013. Plus, hotels are under construction in southern-east part of Seoul. (Table 2.3) However, due to the limited amount of vacant land and the cost of demolition and construction, businessmen began to take a look at renovation of the building with poor performance in the downtown. In Seoul, six buildings in the downtown, some of which used to be an office building and a shopping mall, are under renovation. Wise Building which used to be an office building in CBD is being renovated into a business hotel with 200 rooms. Milliore in Myeong-dong which was suffering from underperformance despite the premium location in the middle of the shopping district in Myeong-dong is being turned into a 24-story hotel. Other buildings located in CBD including M Plaza Building, Samnyeong Building, Chengbank Building, and Seodaemun Art Hall are also transforming. (Table 2.5) Public Sector In response to the trend, Korea government announced the master plan to promote accommodation dramatically. It declared the construction plan for 30 thousand units of accommodation for foreign tourists around Seoul. The plan includes supplementing additional 2,500 rooms of Goodstay and Enostel* and, accordingly, generating 9,525 rooms available until 2011.* The government is planning to develop various type of accommodations such as luxury pensions and youth hostels, securing 5000 additional rooms. What is more, Tourism Complex which includes all amenities for foreign tourists is supposed to be set in Seoul. Simultaneously, the government decided to provide developers with sites for hotels for free. To be specific, it designated public land property in Hanam, Uirye, and Naegok as the site for two thousand additional accommodations. Besides, it promoted Hanryu World which includes 960 rooms of luxury hotels and 3,050 of business hotels in Gyeonggi-do, the suburban area of Seoul. (Table 2.5) 3 Strategy to Upgrade Tourism in Korea, Samsung Economic Research Institute, Sept 2011
*Goodstay and Enostel: qualified motels and inns guaranteed and supervised by the Korea government

Governmental Policy in Hospitality

Even though the popularity of accommodation establishments is skyrocketing, the relevant law and regulation have been opposed to the demand. To step with the new trend, Korea government is overhauling the existing regulations which are somewhat against the hotel development for the tourists. Above all, regulation on location of hotels is going to be alleviated. In the past, hotels were not allowed to be placed in the residential area because they were considered a harmful establishment against the public interest. There also will be modification on Guidance on Urban Development Plan. Unlike the past, allocation of accommodations for tourists will be included when the government advances the development project. Construction Law will be modified in favor of establishing hotels as well. It will rule out the accommodation function from the list of harmful establishments to school zone and residential area. Incentives on setting up hotels are supposed to be enacted. Construction or developers will benefit in the process of acquisition of land from the discounted land price for hotels under the appraised price. They will be incentivized from tax.4 The government will exempt them from tax for traffic congestion and acquisition of the property, when they establish a hotel. Moreover, the companies can set up higher hotels than other functions. (Table 2.6) Nevertheless, there are still difficulties in raising hotels. Until now, it is hard to renovate the existing establishments into accommodations. None of incentives cares about tourists staying for a long time.

3. Socio-economic Considerations Demographic Change in Seoul

According to statistics released by Seoul government, the settled population in Seoul is expected to decrease continuously from 10.37 million in 2000 to 98 million in 2020. Moreover, the population in CBD during working hours will also decline from 10.98 million in 2000 to 10.37 million in 2020. It well demonstrates the on-going decentralization of Seoul.5 In contrast, the population over 65 years old will dramatically increase from 9.3% in 2010 to 15.1% in 2020. It echoes that Korean is turning into the aging society. 6

Shift in the Retail Market in Korea

Polarization in Offline Retail Market Luxplosion, which stands for Luxury+Explosion, well defines the present trend in offline retail market in Korea. Gross revenues of the luxury brands in department stores in Korea is US$2.8 trillion in 2010 and accounts for 63%. (Table 3.1) Naturally, Korea became one of the best places to find out all kinds of trendy luxury goods in the world. (Table 3.2) We can also take another glimpse of the retail market from the expansion of convenience stores and department in Korea. Starting with 8 stores in 1998, the number of supermarket in Korea has risen by 32, achieving the sales of US$ 350 trillion in 2010 from US$ 40 trillion in 1998.(Graph 3.1) At the same time, the sales and number of convenience stores has continuously increased on the contrary to the diminishing middle-sized grocery stores.7 This tendency resulted in the demise of stance for fledgling entrepreneurship in the offline retail market in Korea because conglomerates dominate both supermarkets and convenience stores, providing the cheapest price as well as the best convenience. Accordingly, those who want to set up business with an original item are moving toward online market. Bombarding Online Retail Market Since the online market emerged in the late 1990s, online commercial transactions have stretched dramatically. Especially since 2009, they have increased by 20% every year, and, in 2011, online commercial transaction in the second quarter of 2011 is up to US$ 205trillion, a 21-percent-higher figure than the same quarter of 2010. (Table 3.3) 4 Announcement on Accommodation Supplement Plan, Government Agency TF, Korea, 2011 5 www.seoul.go.kr 6 Demographics Changes the Investment Strategy, Mirea Asset, 2006 7 Deloitte Retail Market Trend in Korea, Dec 2011

Online retail market seems to be on a par with this trend. People buying goods online have increased by 64.3% in 2010 from 12% in 2000. Sales increase in online retail market in the first two quarters of 2011 was 17.8%. The share of online retail sales takes up about a tenth of the retail market in Korea, and, thanks to the smartphone revolution, it is anticipated to expand its territory. Statistic shows that fashion goods is one of the most popular items in the online retail market, followed by tourism, car, and computer products. (Table 3.4)

Oversupplying Office Units

Stagnant Demand in Office Office market in Seoul has performed fair since the economic crisis in 2008. (Graph 3.2) Vacancy rate of office in Seoul is the second lowest in Asia following that of Singapore. (Table 3.5) However, the vacancy rate of prime office (bigger than 10,000sqm) is not as prospective as the entire office market. According to the research by CBRE8, the vacancy rate of prime office in Seoul turned out to be more than 6 percent.(Graph 3.3)What is worse, there are other obstacles to the stable office market. First, return on investment (ROI) is almost similar to company bonds since 2008 so that the attractiveness as a means of investment has decreased. (Graph 3.4) Second, 176 government agencies out of 346 are supposed to move out of Seoul. In addition, a lot of companies including Samsung LED are planning to move its head quarter to near the manufacturing lines. This withdrawal will significantly lower the office occupancy in Seoul. Lastly, the number of office worker is expected to decrease from 2014. (Graph 3.5) Continuous Supply in Office On the other hand, supply in office will consistently increase. Until 2016, 6.26 million square meters of 20 office buildings will be created in the downtown of Seoul. A couple of Urban Redevelopment Project going on across Seoul will create 10 office buildings out of 20 in Seoul. Simultaneously, large scale projects conducted by influential companies such as Hyundai Motors and Lotte Group are supposed to produce 1 million square meters for office. (Table 3.6) What is more, the average number of office units supposed to be made from next year will be even higher than that of the past 5 years. (Graph 3.5) Besides, Seoul government approved Financial Industry Development Plan which includes tax incentives to the construction companies and which is intended to foster construction of office building in the downtown of Seoul.9

3. Other Consideration
Establishment of Mass Railroad Transit
Korea government is advancing the new massive railroad transit project (GTX) as a meant to CBD of Seoul from the satellite cities. It will allow the commuters living in far-fetched towns get to the workplace within 30 minutes, according to the Ministry of Land, Transportation, and Maritime Affairs10. The commencement will be 2013, and it will be complete by 2020.

4. Conclusion - Projection of Hospitality market in 5 years.

Potential of Hospitality in Seoul
Hospitality in Seoul can serve as a critical economic momentum in the future. As Korea society is turning into the aging society, the number of people between 40 and 60 years old is expected to increase by 32.5% in Korea in 2015, the percentage used to be 28% in 2006.11 Considering the nature of tourism industry which does not require labor-concentrated tasks, thousands of retirees can be given a second chance to work. For investors, soaring demand of accommodations can be interpreted as a good opportunity to invest. The higher ROI, about 10%, of hotel investment and the increasing popularity of Seoul will be able to attract investors, improving the feature of Seoul and promote more tourists.12

8 2011 2Q Seoul Market View, CBRE Korea, 2011 9 Forecast on Office Market in Seoul, KIS, 2010 10 http://GTX.go.kr 11 Demographics Changes the Investment Strategy, Mirae Asset, 2006

However, the main reason most tourists visited Korea was to experience Korean fashion and culture portrayed in the soap opera and pop music can be regarded as a temporal fever. In other words, without developing more tangible selling point, the golden age of hotel industry in Seoul will end up with mirage.

Transition of Hospitability Landscape in Seoul

Due to the limited space and the costly nature of construction, the popularity of accommodation for foreign tourist is the most likely to turn surplus office units and shopping malls left behind the polarization of the retail market into hotels. Since the government is aware that the established regulation frustrates the aggressive investors from doing so, modification on relevant law is in progress. Once those transactions fill in all the profitable spots in Seoul, construction of hotel will be prospering along GTX. This transportation will play an important role in prospering hotels for foreign visitors in the fringe of Seoul because it allows tourists to get to their destinations in 30 minutes as well as to dramatically reduce the cost of accommodation. It should be treated as different because existing methods of transportation usually take twice longer time than GTX, the major reason tourist ended up staying in the downtown at the expense of twice more expensive hotel fee.

Strategy to Maximize the Potential of Hospitality in Seoul

Basing on the research on the potential of hospitality industry, we can think about the method to make the hospitality industry more viable in Seoul. 1. To Diversify the Options for Different Interests of Tourists In reality, Seoul failed to provide tourists with various options of accommodations, meaning that most of accommodations have unilateral feature in terms of price, service, and design. Eventually, some of prospective tourists who visited Korea with small budget ended up giving up accommodating the cost or complaining about the poorest quality of a package tour. On the other hand, the affluent decided to go to another country because none of accommodations is fitted with their appetite. In this sense, developing a wide variety of options for tourists will enlarge the pool of potential tourists to Korea. 2. To Guarantee Stability to the Investors The main reason many investors have been hesitant to invest in hotels is that the tourism boom can be short-lived while investment in real estate have a deep impact in the long run. Therefore, how we can convert volatility into long-term stability is the most important factor to attract investors. One of the tactics can be to tie the popularity of pop culture to the competitive goods such as luxury goods and fashion items and to divert the purpose of visit from just experiencing the culture to buying them. We have taken a look at the status quo and potential in hospitality in Seoul, and contemplate the viable approach basing on what we investigated. Thanks to the popularity Korean pop culture, Seoul is experiencing unprecedented wave of foreign tourists. Accordingly, government and investors rushed to dive into the wave in order to benefit from them. However, without deliberate scheme to maintain this trend, this fashion will just end up with daydream.

12 Office Market Trend and Forecast in Seoul, KB Finance Group, April 2011

Appendix
Table 1.1 Changes in the Number of Foreign Tourists Year # of tourist Growth 2001 5,147,204 -3.3% 2002 5,347,468 3.9% 2003 4,752,762 -11.1% 2004 5,818,138 22.4% 2005 6,022,752 3.5% Source: Statistics Korea Year 2006 2007 2008 2009 2010 # of tourist 6,155,047 6,448,240 6,890,841 7,817,533 8,797,658 Growth 2.2% 4.8% 6.9% 13.4% 12.5%

Table 1.2 Nationalities of Visitors Korea in 2010(Continents) Total Asia USA Europe 2009 100% 77.7% 9.62% 7.65% 2010 100% 77.73% 9.25% 7.34% 2011 100% 77.9% 9.11% 7.39% Source: Statistics Korea Table 1.3 Rank of the Nationalities of Visitors to Korea in 2010 1. Japan 2. China 3. USA 4. Taiwan 5. Philippines Source: Statistics Korea 34.36% 21.31% 7.42% 4.61% 3.38%

Australia 1.66% 1.66% 1.62%

Africa 0.36% 0.27% 0.38%

Etc. 3% 3.63% 3.6%

6. Thailand
7. Hong Kong 8. Russia 9. Canada

2.96% 2.59% 1.71% 1.37% 1.28%

10.Australia

Table 1.4 Growth Rate of the Age of Foreign Tourists Year Total 0-20 21-30 31-40 08-'09 13.4% 12.9% 25.3% 12.2% 09-'10 12.5% 18% 13.8% 12.6% 10-'11 6.1% 8.5% 14.4% 6.8% Source: Statistics Korea Table 1.5 Percentage of the Age of Foreign Tourists Year Total 2009 100% 2010 100% 2011 100% Source: Statistics Korea 0-20 7.1% 7.4% 7.4% 21-30 18.2% 18.4% 19.6% 31-40 19% 19% 18.9%

41-50 10.1% 15.3% 6.7%

51-60 13.7% 8.7% 1.1%

Over 60 25% 9.4% -5.7%

Crew -3.5% 11% 7%

41-50 17.7% 18.2% 18%

51-60 15.5% 15% 14.2%

Over 60 11% 10.7% 9.9%

Crew 11.4% 11.3% 11.9%

Table 1.6 Gender of Visitors Nationality 2009 2010 2011 Source: Statistics Korea Total 100% 100% 100% Male 44.1% 43.9% 43.9% Female 44.5% 44.8% 44.2% Crew 11.4% 11.3% 11.9%

Table 1.7 Purpose of Visit to Korea Year Tour Business 2009 72.7% 3.5% 2010 72.4% 3.2% 2011 71.1% 2.7% Source: Tourism Statistics, Korea Tourism Organization Table 1.8 Favorite destination of tourists Myeong Dong Namdaemun Market 55.1% 47.3%

Offical 0.4% 0.4% 0.3%

Others 21.7% 22.5% 24.3%

Total 100% 100% 100%

Dongdaemun 42.3%

Seoul Plaza 18.7%

Source: www.seoul.go.kr Table 1.9 Activities of Tourists(double ckecked) Historical sites Shopping mall 70% 64.6% Source: www.seoul.go.kr Table 1.10 Favorite Shopping Items Items Proportion Clothes Perfume Food Source: www.seoul.go.kr Table 1.12 Accommodations of Foreign Tourists Hotel 65.4% Source: www.seoul.go.kr Motel/inn 18.5%

Famous Restaurants 36.7%

Entertainment 13.4%

*Double checking was allowed

Table 1.11 Favorite Shopping places Shopping place 41.9% Airport 37.7% Myeongodng 34.3% Namdaemun Department store

Proportion 43.8% 42% 32% 31.9%

*Double checking was allowed

Friends house 11.1%

Youth hostel / Guest house 6.5%

Table 1.13 Expenditure per Foreign Tourists in 2010 Australia Japan Singapore 5,115 1,533 1,542 Source: UNWTO(2011) UNWTO Tourism Highlights 2011 edition.

Thailand 1,247

Korea 1,108

Table 2.1 Status Quo and Estimation on Demand on Hotels(2011) Status Quo Estimation on the demand on hotel rooms Year Existing Required Targeting Expected Expected Required
rooms rooms Visitors Occupancy Stay paxs Rooms

Korea 73,175 + 4,113 7,818,000 74% 6.1 2 2009 Seoul 23,864 10,667 3,909,000 74% 6.1 2 Korea 76,907 + 1,821 8,500,000 74% 6.1 2 2010 Seoul 25,081 12,462 4,250,000 74% 6.1 2 Korea 80,829 1,321 9,300,000 74% 6.1 2 2011 Seoul 26,360 14,716 4,650,000 74% 6.1 2 Korea 84,951 3,386 10,000,000 74% 6.1 2 2012 Seoul 27,705 16,463 5,000,000 74% 6.1 2 Source: Announcement on Accommodation Supplement Plan, Government Agency TF, Korea, 2011 Table 2.2 Existing Number of Hotels in Seoul Year 2008 2009 # of Hotels 131 137 Difference +6 Source: Annual Report on Tourism 2010, Ministry of Culture, Sports, and Tourism, Korea Table 2.3. Hotels under construction
Name Rossana Buiness Hotel Hotel Elle Inn S Business Hotel New Star Hotel Flower Business Hotel Sheraton in D-Cube City NOX Hotel U1 Business Hotel SKY Park Hotel Stanford Hotel Lotte City Hotel in SKY Park Chrystal Hotel Joatel Hee & Sun Hotel Haein Business Hotel at Parcel 84 Bago Hotel Conrad Hotel Green Park Category Business Hotel Business Hotel Business Hotel Business Hotel Business Hotel Luxury Hotel Business Hotel Business Hotel Business Hotel Luxury Hotel Business Hotel Business Hotel Business Hotel Business Hotel Business Hotel Business Hotel Luxury Hotel Business Hotel Location Seokchon-dong Galwol-dong Hwagok-dong Sangbong-dong Cheongryangri Shillim-dong Yeoksam-dong Seocho-dong Chungmuro 2ga Sangam DMC Banghwa-dong Hwagok-dong Seongbuk-gu Yeoksam-dong Bukchang-dong Chunho-dong IFC in YBD Gangbuk-gu

69,062 34,531 75,086 37,543 82,153 41,076 88,337 44,168

2010 139 +2

Completion 2011 2011 2011 2011 2011 2011 2011 2011 2011 2011 2011 2011 2011 2011 2012 2012 2012 2012

Table 2.3. Hotels under construction(continue)

Name JW Marriot Haein Business Hotel Ibis Ambassador Hotel Paros Business Hotel Hotel Shilla Walker Hill in Cheonggiwa Gas Station Rivanain Business Hotel Samsung Butique Business Hotel Mosamu Business Hotel Rose Garden Hotel In Eunpyeong New Town B Business Hotel Lotte Hotel in Chilseoungs land Lotte Hotel

Category Luxury Hotel Business Hotel Business Hotel Business Hotel Business Hotel Business Hotel Business Hotel Business Hotel Business Hotel Business Hotel Business Hotel Business Hotel Business Hotel Business Hotel

Location Dongdaemun-gu Bukchang-dong Iksun-dong, Jongro-gu Jamsil Yeoksam-dong Donggyo-dong Seocho-dong Samsung-dong Yeoksam-dong Suyoo-dong Eunpyeong-gu Shinwol-dong Seocho-dong Chungryangri

Completion 2013 2013 2013 2013 2013 2013 2013 2013 2013 2013 2013 2013 2015 2015

Source: 2011 2Q Seoul Market View, CBRE Korea, 2011 Table 2.4 Building under Renovation to Hotels in the Downtown
Name M Plaza 28,000m2 Wise Builiding Samnyeong Building Chengbank Building Seodaemun Art Hall Milliore Former Function Office Office Office Office Office Shopping Mall Location Myeong-dong Euljiro Myeong-dong Myeong-dong Myeong-dong

Source: Why are OfficesTurning into Business Hotels Nowadays?, Money Today, 2011 Table 2.5 Hanryu World

Location: Janghang-dong, Deahwa-dong, Goyang-si, Gyeonggi-do Dimension: 994,756 Construction Period: 20042012 Construction Cost: $5 bil
Source: Announcement on Accommodation Supplement Plan, Government Agency TF, Korea, 2011 Table 2.6 Incentives in Gross Floor Area (GFA) Types of office district 1 GFA according to the share of accommodation in the building <20% 600% 20% 650% 30% 675% 40% 700% 50% 725% 60% 750% 70% 775% >80% 800%

2 300% 350% 375% 400% Source: Announcement on Accommodation Supplement Plan, Government Agency TF, Korea, 2011 Table 3.1 Share of Goods in Online Retail Market Category Fashion Tourism Car Computer Food For Kids Share 16.8% 14% 10.7% 9.7% 7% 5.9% Category Cosmetics Sports Vegie/Seafood Software Flower Share 5.6% 4.5% 2.8% 0.3% 0.2%

Source: Trend in Online Transactions and Cyber Shopping in 2Q 2011, Statistics Korea

Table 3.2 Sales of Items in Department Stores in 2011 Luxury goods Clothes Sales 1bil 389mil Share 63% 23% Source: Deloitte Retail Market Trend in Korea, Dec 2011

Jewelry 131mil 8%

Watch 94mil 6%

Table 3.3 Increase in Commercial Transaction Compared to the Previous Quarter Year 2009 2010 Period 2Q 3Q 4Q 1Q 2Q 3Q 4Q Increase 8.2% -2.9% 13.8% 21.2% 19.9% 27.6% 21.8% Increase in online retail sales in 1,2Q of 2011: 17.8% Source: Trend in Online Transactions and Cyber Shopping in 2Q 2011, Statistics Korea Table 3.4 Share of Online Retail Sales Year 2009 2010 1Q 2011 Share 8.2% 9.1% 9.6% Source: Trend in Online Transactions and Cyber Shopping in 2Q 2011, Statistics Korea Graph 3.1 # and Revenue of the Supermarkets (2007)
(10 Thousand)

2011 1Q 20.9%

2Q 21%

2Q 2012 9.6%

Graph 3.5 Expected # of Office Workers

Sales(US$ 100bil )

Number of Stores

Source: Deloitte Retail Market Trend in Korea, Dec 2011

Source: Institute of Land Research

Graph 3.2 Avg. Price and #of Office 3.4 Changes in ROI of transaction of office

# of transaction Price / m2

Source: Sinyoung Asset 2011 Graph3.3 Supply,Net absorption and vacancy of prime office Table 3.5 Vacncy Rate ofMain Cities in Asia a

2007 1% 1.2 Tokyo % 3.3 Shanghai % Hongkon 2.9 g % Singapor 0.2 e % New Deli 2%

CityYr Seoul

2008 1.5% 3.5% 10.5 % 8% 0.9% 5.3%

2009 3% 6.5% 16% 8.5% 6.2% 15.6 %

2010 3.1% 4.9% 9.2% 5.6% 2.7% 27.7 %

2011 2.2% 4% 9.8% 6.3% 2.5% 12.7 %

S o u rceC B R E K o reM,a rke tvie wf S e o u l 2 Q 2 0 11 : a o Graph 3.5 Office supply in Seoul Office units> Avg.ofSupply(yearly) <# office supply <Dimension>
OfficeSupply(cumulative) from 2006 to 2011

O ffice M a rke t Tre n d a n d F ore ca st in S e o u l, K B F in a n ce G ro u p

Source: Office Market Trend and Forecast in Seoul, KB Finance Group, April 2011 Table 3.6 On-going office construction in Seoul
Name Habjeong2 Urban Redevelopment Project Habjeong1 Urban Redevelopment Project D-cube city Jeo-dong 1 Urban Redevelopment Project Eulgiro-2ga Urban Redevelopment Project MBC Location Habjeong-dong, Mapo-gu Habjeong-dong, Mapo-gu Sindorim-dong, Guro-gu Eulgiro-2ga, Jung-gu Suha-dong, Jung-gu Sangam-dong, Mapo-gu Dimension(1000m2) 127 295 230 130 167 152 Completion 2011 2011 2011 2011 2011 2012

Pai City Suha-dong Urban Redevelopment Project Conference hall of Economic Affiliation Seoul International Finance Center Jeonnong1 Urban Redevelopment Project Park One Chengjin2-3 Urban Redevelopment Project Yongsan3 Urban Redevelopment Project Lotte World 2 Chengjin12-16 Urban Redevelopment Project DMC Landmark Tower Hyundai Motors Dream Tower Total

Yangjae-dong, Seocho-gu Hanganro, Yongsan-gu Yeouido-dong, Yeongdeungpo-gu Yeouido-dong, Yeongdeungpo-gu Jeongnong-dong, Dongdeamun-gu Yeouido-dong, Yeongdeungpo-gu Cheongjin-dong, Jongno-gu Hanganro, Yongsan-gu Sincheon-dong, Songpa-gu Cheongjin-dong, Jongno-gu Sangam-dong, Mapo-gu Seongsu-1ga, Seongdong-gu Yongsan-gu

757 365 169 510 227 350 106 203 608 176 728 410 558 6406

2013 2012 2012 2012 2013 2013 2013 2014 2014 2014 2015 2015 2016

Source: Forecast on Office Market in Seoul, KIS, 2010