Owners of knowledge industry centers are facing severe challenges as they grapple with declining asset values, reduced loan availability, rising interest rates, and increased principal repayment burdens.
A resident who purchased a knowledge industry center in Gyeonggi Province, identified as A, expressed concerns in an interview on the 30th, stating, "The burden of principal repayment is growing due to rising interest rates and frequent re-evaluations during the loan extension process."
A reported that the interest rate on their loan increased from the mid-4% range to 7.33% during this month's extension, with the loan now requiring renewal every three months. A had previously taken out a loan of 348 million won to purchase a knowledge industry center for 410 million won in 2023.
Although the principal repayment amount was adjusted from 17 million won to about 10 million won during this extension, A is concerned about the future. "While I have tenants, the rental income is insufficient to cover the loan interest, forcing me to invest my own money. If I am continually required to repay the principal, it will be difficult to manage," A lamented.
The situation is compounded by the difficulty of selling assets to alleviate the financial burden. The market for knowledge industry centers is flooded with unsold units being offered at discounted prices, making it challenging for existing owners to sell. Some units are being sold at approximately 18% less than their original prices. For instance, A's property, originally purchased for 410 million won, is now listed by the developer for about 320 million won.
Leasing is also proving difficult. With increasing vacancies, landlords are lowering rents to attract tenants. An industry insider noted, "Some knowledge industry centers are reducing rents to between 200,000 and 300,000 won to secure tenants, and the relatively high management fees make it challenging to maintain occupancy rates."
Financial institutions are tightening their assessments of commercial real estate, including knowledge industry centers. A bank representative stated, "Due to the poor market conditions for knowledge industry centers, banks have increased their scrutiny. In the past, loan-to-value ratios reached 80%, but now they can drop to 50% due to poor collateral evaluations." The representative added that the reduction in secured loans often leads to a shift toward unsecured loans.
This has created a vicious cycle: declining prices lead to reduced collateral value, which results in lower loan limits, necessitating additional capital, and ultimately leading to auctions.
According to Kang Eun-hyun, head of the Law Firm Myungdo Auction Research Institute, "Knowledge industry centers, once in high demand, have seen oversupply and decreased demand due to economic downturns, particularly in the metropolitan area. Many investors leveraged their purchases when lending restrictions were less stringent, but as financial pressures increase, more properties are moving toward auction."
Once properties enter the auction process, recovering losses becomes difficult. Demand for commercial real estate is more limited than for residential properties, increasing the likelihood of repeated failures to sell. If properties are sold quickly, they may fetch prices below market value. A decline in the auction price can exacerbate losses for existing owners and further depress the market value and collateral of knowledge industry centers.
Meanwhile, converting existing knowledge industry centers for different uses has emerged as a potential solution. The Korea Real Estate Development Industry Research Institute suggested in a policy report in March that converting unsold knowledge industry centers into residential facilities could be a viable alternative, emphasizing the need for agreements with the Korea Land and Housing Corporation, policy financing support, and the relaxation of financial and tax regulations.
* This article has been translated by AI.
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