Real estate lending by South Korea’s four major commercial banks (KB Kookmin, Shinhan, Hana, and Woori Bank) fell in the first quarter of 2025 for the first time in two consecutive quarters as commercial real estate leasing continues to struggle and vacancy rates rise across the country.

With expectations that the industry downturn will persist, Woori Bank and others have effectively halted new loans, raising concerns that the market could shrink even further.

According to sources from the Financial Supervisory Service and the four major commercial banks on Sunday, the combined outstanding balance of real estate leasing loans at the banks totaled 188.32 trillion won ($130.70 billion) at the end of the first quarter of 2025, down 1.85 trillion won from 190.17 trillion won at the end of 2024.

The decline widened in the first quarter of 2025, following a quarter-on-quarter decline of 801.4 billion won in the fourth quarter of 2024.

This is the first time that real estate leasing loans have decreased since related statistics became available in the third quarter of 2015.

The downturn is largely attributable to the weakening of the commercial real estate market, including shopping malls, knowledge industry centers, and residential-type lodging facilities.

The vacancy rate in major downtown shopping areas rose sharply, with Garosu-gil, a prime commercial district in Seoul, hitting 39 percent at the end of 2024.

Transaction volumes for knowledge industry centers plummeted to a five-year low in the year.

Residential-type lodging facilities are also facing a wave of lawsuits related to unpaid balance payments, while the housing rental market continues to struggle as villa properties are increasingly shunned in the aftermath of rental deposit fraud cases.

Commercial banks have continued to expand real estate leasing loans under the assumption that collateral would make loan recovery possible.

They continued to extend loans at an annual rate of more than 9 trillion won even during the Covid-19 outbreak in 2020, while the pace slowed.

However, the trend reversed completely from the fourth quarter of 2024.

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