Out of the Pandemic Tunnel, Global Brands Queue Up for Gangnam

Just two to three years ago during the pandemic, Gangnam-daero suffered from an unprecedented vacancy crisis. Due to the combination of social distancing and the burden of operating brick-and-mortar stores, large-format stores pulled out one after another. As of 2023, the number of vacant street-level stores along Gangnam-daero soared to 18, reaching an all-time high (CBRE Korea Retail internal research data).

While the vacancy rate in the Gangnam area is reported to have risen sharply starting from the onset of COVID-19, the vacancy rate on the main street-level of Gangnam-daero actually reached its peak late in 2023. This is because of the long-term lease structures of large stores. Small-scale tenants on the upper floors quickly left immediately after the hit. On the other hand, large global retailers on the lower levels had to fulfill their lease terms even while operating at a loss, due to multi-year contracts and security deposit issues. It was only when their contract renewal dates arrived in 2023 that a wave of withdrawals ensued, causing vacancies to surface late.

According to the Korea Real Estate Board, the vacancy rate for medium-to-large buildings in the area of Gangnam-daero Station (indicated on the map on the left) rose sharply after entering the COVID-19 period.

Out of 47 medium-to-large buildings adjacent to Gangnam-daero, vacancies on the lower floors peaked at 18 in 2023, showing the delayed impact of COVID compared to the overall medium-to-large vacancy rate in the Gangnam-daero Station area.

However, today's landscape of Gangnam-daero has completely turned around. Among a total of 47 buildings surveyed along the main street by CBRE Korea Retail, there are only 2 buildings with street-level retail vacancies. It is a complete resurrection, with the entire commercial district approaching a zero vacancy rate.

Even now, walking down the street, there are spaces that appear to be vacant, but these are not vacancies due to a failure to find tenants. In the actual leasing market, contracts have already been finalized with global brands. They are "in preparation" vacancies where large-scale interior construction, administrative permits, and launch marketing are being organized to bring the brand identity to life. The spaces that were vacant in 2023 are already running their engines at full throttle after just three years.

Strategic Cohabitation of Lower-floor Retail and Upper-floor Medical

On the lower floors of buildings along Gangnam-daero, a large number of global and domestic brands are positioned, including Apple Store, Lululemon, Olive Young, Chagee, Muji, Musinsa, Zara, Decathlon, and Warhammer.

The key factor that enabled such a rapid recovery was the combination model of "street-level retail + upper-floor medical."

The lower floors of a building are key spaces that determine the visibility and first impression of the asset. Post-pandemic, global brands semi-forcibly abandoned their multi-store expansion strategies. Instead, they shifted to a large-scale flagship store strategy to showcase their brand philosophy by concentrating resources in a single commercial district where prominent symbolism is guaranteed.

Alice Lim, Assistant Manager of Retail at CBRE Korea, shared that Gangnam-daero is one of the few domestic districts capable of accommodating large flagships.

Gangnam-daero aligns with this strategy. This is why Lululemon's first flagship in Korea, Decathlon's second Gangnam store, Chagee, and Warhammer are opening. In particular, Gangnam is an already-proven market for global brands, making it possible to predict stable sales compared to emerging commercial districts and making store-opening decisions much easier. 

Conversely, the upper floors of the building are filled with medical tenants that rely heavily on destination visits. Consumers directly visit dermatologists, plastic surgeons, and dental clinics for the purpose of treatment or procedures. As long as accessibility is good, they can easily play the role of high-quality tenants on the upper floors.

Mark Do, Senior Director of Retail at CBRE Korea, analyzes the structural changes of the Gangnam commercial district as follows.

"The speed of vacancy resolution on Gangnam-daero strongly proves the recovery of demand from retailers. Now, when evaluating building value in key high-street commercial districts, the era of looking only at lower-floor rent or overall foot traffic is over. On the lower floors, global brands with proven crowd-drawing power are placed to enhance building recognition and create traffic flows. On the upper floors, high-quality medical tenants with a high potential for long-term operation are integrated. Designing vertical industry synergy—where street-level retail boosts the building's value and upper-floor medical supports stable cash flow for the asset—is the key formula for utilization of Gangnam-daero assets in 2026."

Currently, retail on Gangnam-daero operates with the street-level brand experience and the upper-floor medical destination demand interlocking gears precisely. It is at the forefront of a unique asset evolution that combines global capital and destination consumption, going beyond a simple high street.

While the lower floors are a battleground for glamorous retail brands, the upper floors are a massive cash cow accounting for about 75% of the total revenue of the Gangnam commercial district. A medical market monopolizing 39 of the top 50 performing stores. In the next episode, we will look into the surprising data on the truly big global hands driving Gangnam's medical market, especially the offensive led by the Japanese and the unimaginably high spending of customers from Hong Kong and Taiwan.