IntelligentInvestment

Introduction

ThekRW361TrillionEraofDevelopmentLoans:

TheExpandingscaleofkorea'SRealEstateFinanceMarketandtheGrowingNeedforRiskManagement

Asof2024,thecombinedloanbalanceforkorea'sconstructionandrealestatesectors

Figure1:TrendsinconstructionandRealEstateLending(ExcludingHouseholdLoans)

totaledapproximatelykRW361trillion.Thisfigurehasrepeatedlyhitrecordhighsinrecentyearsandhasmorethandoubledoverthepastdecade,indicatingapronounced

accelerationingrowth.

Thisexpansionhasbeendrivenbyaconvergenceofseveralfactorsincludingaprolongedlow-interest-rateenvironment;thegrowthofthedomesticcommercialrealestatemarket;

risingassetprices;increasedmarketparticipationbycorporates;andtheescalationof

constructioncostsassociatedwithlarge-scaledevelopmentprojects.However,thislong

termgrowthinthedomesticrealestatefinancemarkethasseentheconcurrentemergenceofaneedformacro-levelriskmanagement.

Furtherinterestratecutsarewidelyanticipatedbeforetheendof2025andcontinuinginto2026.whileratereductionsareexpectedtostimulateadditionalloandemandwithin

korea'scommercialrealestatesector,aprolongedperiodofsubduedeconomicgrowthcouldelevatetheriskofloandeteriorationanddefaults

Againstthisbackdrop,CBREhasundertakenkorea'sfirstlender-focusedrealestatesurveytogainacomprehensiveunderstandingofthemarket.Featuringparticipationfrom44

majordomesticlenders,thesurveyexplorestopicsincludingfuturelendingattitudes;

preferredassetclasses;shiftsinunderwritingstandards;andbroaderexpectationsforthe

lendinglandscape.Throughtheseinsights,CBREprovidesaforward-lookingperspectiveonthefutureofkorea'srealestatefinancemarket.

source:MinistryofDataandstatistics,December2025.

Domesticbanks

pensionfundsand

mutualaidassociations

capitalcompanies

savingsbanks

44majorlendersparticipatedinthissurvey

Foreignbanks

insurancecompanies

securitiesfirms

Assetmanagementcompanies

CBRE

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3CBRERESEARCH?2025CBRE,INC.

contents

1.currentLendingMarketconditionsandoutlook

2.RealEstate-backedLendingstrategies

3.projectFinance(PF)Lendingstrategies

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TrendsinkeyMacroeconomicIndicators(20052026F)

Figure2:BaseRate,AnnualGDPGrowth,FacilityLoanRatesandkRW/USDExchangeRate(20052026F)unit:KRW

overthepasttwodecades,korea'smacroeconomiclandscapehasbeencharacterizedbyastructuralslowdowninGDpgrowthandheightenedvolatilityinbothpolicyinterestratesandtheexchangerate,drivenbymultipleglobaleconomicshocks.

FollowingtheGlobalFinancialcrisis(GFC)in2008,korea'sannualGDP

growthratedeclinedfromthe5%rangetothe2%range,markinga

transitionintoaprolongedlow-growthenvironment.Inresponse,theBankofkorea(BOK)implementedaseriesofratecuts,usheringinaprolongedperiodoflowandultra-lowinterestrates,withthebaseratereachinga

historiclowof0.5%.AlthoughGDpgrowthreboundedin2021duetothebaseeffectfromtheprecedingyear,itsubsequentlyenteredaphaseofdecelerationthefollowingyear.

Incontrast,theperiodfollowingthepandemicsawpolicytightening

accelerateatarecordpace,withthebaseraterisingto3.50%byearly2023asauthoritiessoughttocurbinflationarypressures.whilefacilityloanratesbroadlytrackedmovementsinthebaserate,riskpremiumswidenedsignificantlyduringperiodsofelevatedmacrouncertainty

astheGFcandthepandemicleadingtoanincreasedfundingburdenforcorporates.

ThekRW/USDexchangerate,whichspikedsharplyin2008,

subsequentlystabilizedoverthelongterm.However,therecentcycleofaggressiveratehikesbytheu.s.FederalReserveandpersistentdollarstrengthhasonceagainplacedupwardpressureontheexchangerate,heighteningconcernsoverexternalliquidityconditionsandthepotentialforcapitaloutflows.

From2024onwards,theBokhasshiftedbacktowardsapolicyofrate

cuts.withinflationstabilizinganddownsideriskstogrowthbecoming

BaseRate(LHS)——AnnualGDPGrowth(LHS)FacilityLoanRates(LHS)KRW/USDExchangeRate(RHS)2026outlooksource:oxfordEconomics,MinistryofDataandstatistics,November2025.

morepronounced,thebaserateisexpectedtodeclinegraduallythrough2026.Nevertheless,elevatedkRW/USDlevels,highhouseholddebt,risinghousingpricesandotherstructuralconstraintsarelikelytolimitthe

extentofmonetaryeasing.

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6CBRERESEARCH?2025CBRE,INC.

commercialRealEstateInvestmentvolumeTrends(20152025F)

unit:KRW1Trillion

Figure3:commercialRealEstateInvestmentvolume(20152025F)

Thestrongupwardgrowthtrajectoryofseoul'scommercialrealestate

investmentmarkethasbecomeincreasinglyevidentoverthepastdecade,withtransactionvolumesshowingstrongcorrelationwiththebroader

base-ratecycle.FollowingtheGFC,officeassetsparticularlythose

soughtbyforeigncapitaltargetinghigheryieldsdominatedtransactionactivity.From2017onwards,however,thelogisticssectoremergedasanalternativetocompressedofficeyields,gainingsignificantmomentum,

particularlyinthepostpandemicperiod.

Duringtheprolongedlow-interestrateenvironment,seoul'scommercial

realestateinvestmentmarketreachedahistoricmilestonein2021,

recordingkRW21trillionoftransactions,thehighestannualinvestment

volumeonrecord.Thiswasdrivenbyadecade-longexpansionofliquidity,withbothdomesticandinternationalinvestorsactivelyparticipatingin

themarketonthebackofexceptionallylowfinancingcosts.

Bycontrast,thesharpincreaseinthebaseratefrom2022onwards

substantiallyraisedfundingcosts;amplifieddownsideriskstoasset

pricing;andwidenedbid-askspreads-resultinginamarkedslowdownin

transactionactivity.Nevertheless,despitetheratehikecycle,seoul's

GradeAofficemarketmaintainedexceptionallylowvacancy,

demonstratingstrongfundamentals.supportedbythisresilience,seoul'scommercialrealestateinvestmentvolumein2024registeredan

exceptionalrebound,surpassingtherecordlevelpreviouslysetin2021.

In2025,largescaletransactionsparticularlywithintheofficesector

havebeenadefiningfeatureofthemarket.combinedwithawidespreadmarketexpectationofinterestratecuts,investorsentimenthas

strengthenedsignificantly.AsofQ32025,cumulativefull-yearinvestmentvolumehasalreadyexceededkRW25trillion,outpacingthefull-

2024total.AnnualtransactionsareexpectedtosurpasskRW30trillion,markinganotherrecordyear.Investorsentimentsurveysindicatethat

source:CBREResearch,November2025.

koreanrespondents'acquisitionappetitehasreachedanall-timehigh,underscoringthedecisiveimpactofshiftsintheinterestrate

environmentonmarketactivity.

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RatecutExpectationsandconservativeLendingstance

In2025,korea'slendingmarketdisplayedagenerallycautiousstance,

shapedbyacombinationofpositiveinfluencesfromexpectedinterestratecutsandnegativepressuresarisingfrommacroeconomicslowdownandintensifiedfinancialriskhedging.

AccordingtodatafromthekoreastatisticalInformationservice(KOSIS),whichsurveysmarketparticipantsonlendingsentiment,bothlenders

(supplyside)andborrowers(demandside)exhibitedincreasinglyconservativeattitudestowardlendingastheyearprogressed.

whilethefirsthalfoftheyearsawimprovingdemandsupportedbyexpectationsofmonetaryeasingmostlendinginstitutions,excludingdomesticbanks,consistentlyrecordednegativeindexreadings

throughoutH12025,signalingtheirintentiontomaintainatighteningstance.Non-bankinstitutionswereevenmoreconservative,reflectingheightenedconcernsoverborrowers'repaymentcapacityandan

increasedriskofloandeterioration.

Thiscautiouspostureappearstohavebeendrivenbyproactiveeffortstomanagerisksassociatedwithprojectfinanceexposuresandbroader

economicheadwinds.Lendershaveconcentratedselectivelyonhigh-

qualityassetsandfinanciallysoundborrowerstosecureprofitability,

whileconcurrentlyreducingexposuretoriskiersegmentsandtighteningunderwritingstandardstosafeguardassetquality.

Inthesecondhalfoftheyear,politicalandregulatoryuncertainty

followingthepresidentialelectioncombinedwithrisingconcernsovereconomicrecessioncontributedtoweakeningborrowersentiment,

furthercoolingloandemand.

Figure4:LendingDemandin2025(Lenders'AssessmentofBorrowerDemand)

Figure5:LendingAttitudesin2025(Lenders'AssessmentofLoansupply)

-40

——DomesticBanks——savingsBanks

——creditcardcompanies——MutualFinancecooperatives

DomesticBankssavingsBanks

——creditcardcompanies——MutualFinancecooperatives

source:MinistryofDataandstatistics,November2025.

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InvestorconsiderationsandLendingstrategies

Everyyear,CBREkoreaconductsanannualinvestorintentionssurveyofkeydomesticinvestors.

concernsovercentralbankpoliciesandlending,whichdomestic

investorscitedasthebiggestchallengesin2024,significantlydeclinedyear-on-yearinthe2025survey,primarilybecausethetrendofinterestratecutshasbecomemorevisible.Furthermore,mostinvestorssaidthattheywouldincreaseormaintaintheirrealestateinvestmentallocationin2025.Respondentscitedthereductioninborrowingcostsresultingfrominterestratestabilization(ordecline)astheprimarypremisefortheir

plannedexpansionofinvestmentactivity.withtherecoveryof

investmentsentimentdrivenbyliquidityexpansionandthesecuringofpositiveleverageeffects,theseoulcommercialrealestatemarketis

expectedtorecorditslargesteverinvestmentvolumein2025.

conversely,whilethereisageneralexpectationthattheoverallfinancingenvironmentwillimprovein2025comparedto2024,concernsregardingstringentbankunderwritingstandardsweretheonlyfactortoshowan

increase,Theviewofinvestorsthatvariouselementssuchasasset

quality,location,tenantpresenceandcreditworthiness,andconfirmed

pre-acquisitioncommitmentswillbecomeincreasinglyimportantfor

obtainingloansduetoreinforcedlendingcriteriaalignsdirectlywiththeconservativesupplystanceidentifiedamonglendinginstitutions.

centralBankpolicy

DeteriorationinLendingconditions

MismatchinpricingExpectations

EconomicRecessionRisk

Risingcosts

Inflation

Geopoliticaluncertainty

InterestRatestabilisation IncreaseinDistressedopportunities MoreRationalpriceAdjustments NeedtoDeployDrypowder ImprovedExpectedReturnsExpectationofHigherpotentialReturnsother

TightenedBankunderwritingstandards

DeclineinInterestcoverageRatios

unfavourableLTvsandcreditspreads

uncertaintyoverRateDirectionIncreasedRiskfromFallingAssetvaluesHigherInterestcostsonNewBorrowing

2025

2024

100%

Figure6:BarrierstocommercialRealEstateInvestment

0%20%40%60%80%

w2023w2024w2025

source:2025koreaInvestorIntentionssurvey.

Figure7:DriversofInvestmentExpansionin2025

0%10%20%30%40%

Figure8:keychallengesincapitalRaising

0%50%

9CBRERESEARCH?2025CBRE,INC.

InvestorconsiderationsandLendingstrategies

Loaninvestments,oneoftheprincipalstrategiesforinvestorsduringthehigh-interestrateperiod,havegraduallydecreasedinpreference

followingthetrajectoryofinterestratereductions.Investorsarenow

seekingmoresophisticatedandstableincomegenerationstrategies,

evidencedbyayear-on-yearincreaseindemandforequityinvestmentsthroughpreferredsharesorRealEstateInvestmentTrusts(REITS).

Inthepast,debtfundswereanattractivealternativeforinvestors

pursuingmid-risk,mid-return,underpinnedbyhighinterestincomeandstability.However,thedeclineininterestrateshasledtoareductioninthedistributionyieldofdebtfunds,therebydiminishingtheirappeal

comparedtoequityinvestmentswherecapitalgainscanbeanticipated.

conversely,investorpreferenceformezzaninefinancing(subordinate

debt),whichoffershigheranticipatedreturnsthanseniordebtinvestmentwhilepresentingrelativelylowerriskcomparedtoequityinvestment,wasmorepronouncedthisyear.

whiletherehavebeeninstanceswheresomedomesticinstitutionsfacedpotentiallossesfrommezzaninedebtinvestmentsduetothesharp

declineinassetvalueswithinoverseasofficemarkets,thelowvacancyrateandlimitedassetvalueadjustmentobservedintheseouloffice

marketsuggestthatmezzaninedebtinvestmenttargetingdomesticassetsremainsavalidstrategy.Amongstrategiesinvolvingequity

investment,thedomesticinvestors'preferenceforpreferredshare

investmentshowedthemostsignificantincrease.Thisisduetoa

heightenedpreferenceformorestablecashflows,coincidingwiththeshifttowardslowerinterestrates

Figure10:preferredstrategiesforEquityInvestment

Figure9:keyInvestmentstrategies

otherinvestors

Figure11:preferredstrategiesforDebtInvestment

40%

2023w2024w2025source:2025koreaInvestorIntentionssurvey.

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HighExpectationsofaRatecutinHl2026:LendersAdoptGradualandprudentRatecutstance

CBRE'ssurveyfoundthemajorityofrespondentsexpecttheBokto

maintainagradualandcautiousmonetaryeasingstanceoverthecomingquarters.

Around90%oflendersanticipateeitheroneadditionalratecutof25bpswithinthisyearoraholdatthecurrentlevelof2.50%.LookingaheadtoH12026,84%ofrespondentsforecastthebaseratetofallwithinthe

2.00-2.25%range,indicatingbroadconsensusthattheBokwilldeliveratleastoneratecutduringH12026.

Thisreflectsaconservativeoutlook,signalingthatlendersdonotexpectcutstobeasrapidorassizeableasmarketexpectations,norcomparabletotheaggressivetighteningcycleseenbetween2021and2023.

Lendersciteseveralmacroeconomicconstraintsthatarelikelytolimitthescaleofmonetaryeasing.Elevatedexchange-ratevolatilitycontinuestoheightenconcernsoverpotentialforeigncapitaloutflows,makingit

difficultfortheBoktonarrowtheinterestrategapwiththeu.s.too

quickly.Inaddition,historicallyhighhouseholddebtlevelsraisetheriskthatexcessivemonetarylooseningcouldreigniteoverheatinginthe

propertymarket.Therecentshort-termratereboundobservedinthemarketfurthersubstantiatestheresidualuncertaintythatpersists.

Giventhesefactors,thebaserateiswidelyexpectedtoexhibitdownwardrigidityoverthemediumterm,suggestingthatareturntotheultra-low-interestrateenvironmentseeninthepastisunlikelyanytimesoon.

Figure12:BaseRateExpectationsforDecember2025

Figure13:BaseRateExpectationsforJune2026

60%

source:CBREResearch,November2025.

11CBRERESEARCH?2025CBRE,INC.

securitizationofprimeLoanportfolios

Lendersareexpectedtoincreasetheirloanactivityin2026,markinganotableimprovementfromthemorerestrainedstanceseenthroughout2025.AccordingtocBRE'ssurvey,62%ofrespondentsindicatedthattheyintendtolendmoreaggressivelyin2026comparedwiththe

previousyear.

Thisshiftindicateslenders'willingnesstotransitionbeyondthecurrent

somewhatconservativeanddefensive'wait-and-see'phaseregardingloansupply.Thisisdrivenbytherecentreductioninopportunitiesto

participateinprimeloanportfolios,suggestingastrategicmovetowardsproactiveopportunitycapture,suchasselectinghigh-qualitydebt,withtheaimofsecuringmarketsuperiority.

Expectationssurroundingloandelinquencyalsopointtoamoreoptimisticdirection.Mostrespondentsanticipatethatdelinquencyrateswilleither

remainstableordecline,suggestingthatlendersviewcurrentrisk-

managementmeasuresasbroadlyeffectiveanddonotforeseearapiddeteriorationinassetqualityinthenearterm.

Thisoutlookappearstoreflectacombinationoffactors:growing

confidencethatfurtherinterestratecutswillimproveliquidityconditions;anexpectationthatborrowers'interest-servicingburdenswillease;and

thebeliefthatmoreprudent,risk-sensitiveoriginationpracticesduring

therecenttighteningcyclehavestrengthenedthecreditqualityofnewlyissuedloans.continuedeffortstoresolvenon-performingexposureshavefurthersupportedthisassessment.

Despitethisshift,underwritingstandardsforoveralllendingareexpectedtoremainstringent.Itisanticipatedthatmajorlenderswillattempt

selectiveloanexpansion,whilstsimultaneouslyofferingflexibleterms

limitedtoprimeassetsandborrowers.Thisapproachacknowledges

persistentmacrolevelrisks,suchasinstabilitywithinthepFmarket,andispremiseduponmaintainingstringentlendingsolvency.

Figure14:Expectedchangesinunderwritingstandardsfor2026

MoreAggressiveAggressiveconservative

source:CBREResearch,November2025.

Figure15:outlookforLoanDelinquencyRatesin2026

60%

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RiskFactorsforkorea'SRealEstateFinanceMarketin2026

overthenextyear,themostsignificantriskfactorthatcouldhindertheexpansionandstabilityofkorea'srealestatefinancemarketisconcernoveraneconomicdownturn;afactoridentifiedbyamajority(52%)of

surveyrespondents.

Abroad-basedslowdownineconomicactivitycouldweakenrealestatefundamentalsbyreducingcorporateleasingdemand;increasingvacancyrates;andexertingdownwardpressureonassetvalues.ultimately,suchconditionsmaydampeninvestmentsentimentandimpairborrowers'

repaymentcapacity.

oversupplyandinstabilityintheprojectfinancemarketrankedjointlyinsecondplace,with20%each.Infact,supplyvolumeremainsoneofthe

mostinfluentialvariablesaffectingtheseoulcommercialrealestate

market.IntheGreaterseoulGradeAlogisticssector,whererecordlevelsofnewsupplyweredeliveredbetween2023and2024,vacancyratesrosesharplyandnewpForiginationswerelargelyhaltedillustratingthe

extenttowhichlendersperceiveafundamentalimbalanceinsupply-demandconditionsasamajorsystemicthreat.

InstabilityinthepFmarkethasbeencompoundedbyhighinterestrates;risingconstructioncosts;anddelaysindevelopmentprojects-allof

whichhavecontributedtoanaccumulationofdefaultrisk,Although

korea'SFinancialsupervisoryservice(FSS)iscurrentlypreparingasetofstructuralreformsaimedatimprovingpFassetquality,questionsare

currentlybeingraisedregardingtheefficacyofthisapproach.Thisis

primarilyduetothedeteriorationofrealestatemarketconditionsandtheconflictofinterestamongrespectiveprojectstakeholders.

concernsregardinginflationandgeopoliticalriskwerecomparativelylimited.Thissuggeststhatlenders,informingtheirshorttermmarketoutlook,placegreateremphasisonmacroeconomicconditionsandthestabilityofrealestatefundamentalsthanonexternalfinancialvariablessuchasinterestrates,inflation,orglobalpoliticaldevelopments.

Figure16:RiskFactorsforkorea'SRealEstateFinanceMarketin2026

60%

50%

40%

30%

20%

10%

EconomicRecessionRiskoversupplyInstabilityinpFsupplyInflationGeopoliticaluncertainty

source:CBREResearch,November2025.

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14CBRERESEARCH?2025CBRE,INC.

pursuitofstability:capitalconcentrationinoffcesandLogistics;selectiveInterestinco-livingandDatacenters

In2026,lenders'mostpreferredcategoriesforrealestatelendingwere

stabilizedofficeassets,selectedby75%ofrespondents,followedby

stabilizeddry-storagelogisticsfacilities,with59%.Bothcategorieswere

favoredspecificallyontheconditionthattheassetsarealreadystabilized,underscoringlenders'overarchingprioritizationofstabilityandtheir

strongpreferenceforcoreassetswithprovencashflowamidanuncertaineconomicenvironment.

seoul'sprimeofficedistrictscontinuetoexhibitresilientdemandand

exceptionallylowvacancylevels,reinforcingtheirpositionasthesafestandmostreliablelendingtargetsforfinancialinstitutions.Inthelogisticsmarket,wherecertainvacancyriskspersist,aselectiveapproachwasobserved.Respondentsshowedahighpreferenceexclusivelyfordrylogisticscentersthatguaranteestableoperatingincomethrough

tenantoccupancy.consequently,ahighlyselectiveinvestmentstrategywasevident.

Atthesametime,certainalternativeassetclasseswithstronggrowth

potentialnamelyco-livinganddatacentersrecordedmeaningful

interestatlevelsexceeding20%.co-livinghasgainedattractivenessas

shiftingresidentialpreferencesandcontinuedgrowthinsingle-person

householdssupportrisingdemand,particularlyamongyounger

demographics.Datacentersareincreasinglyrecognisedasfuture-

infrastructureassets,supportedbyrapidexpansioninartificial

intelligenceandcloudcomputingpromptinglenderstoconsiderthemasviabletargetsforfuturecapitaldeployment.

Bycontrast,traditionalretailassetsandthosewithelevatedregulatoryormarketriskswereviewedfarlessfavorably.productssuchasserviced

residence-typeaccommodation,whichfaceregulatoryuncertainty,aswellascold-storagelogisticsfacilitiesinoversuppliedsubmarketswith

persistentlyhighvacancy,havebeeneffectivelyexcludedfromlenders'investmentconsiderations.

Figure17:preferredRealEstateLendingAssetTypes(2026)

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