Open AccessRent-Seeking by Rent Concession: An Analysis of Rent-Free Periods in the Seoul Office Market
Author(s) -
Ryu Kang-min,
AUTHOR_ID,
Hyung Min Kim,
AUTHOR_ID
Publication year - 2021
Publication title -
journal of the asian real estate society
Language(s) - English
Resource type - Journals
ISSN - 1029-6131
DOI - 10.53383/100333
Subject(s) - rent seeking , database transaction , real estate , business , incentive , economics , recession , finance , monetary economics , market economy , macroeconomics , politics , political science , computer science , law , programming language
Rent-free periods (RFPs) have been used in property markets worldwide especiallyduring economic downturns as a discount pricing strategy in marketing. However, thisresearch study proposes that RFPs play a role in increasing or, at least, sustainingface rent that can be reflected in the property price. This study focuses on the Koreanoffice market which has experienced growing vacancy rates since the global financialcrisis possibly leading to a decrease in effective rent with greater RFP incentives. Inthis period, face rent has increased as offering extended RFPs. Hence, high vacant rateswith high face rent have been observed, which is seemingly contradictory against thecommonly known rent-vacancy negative relationship. This research analyses the rent,transaction prices and RFPs during 2003 – 2017 in the Seoul office market. The findingsreveal that positive future anticipations of owners and investors are reflected inextended RFPs to sustain and increase face rent that will eventually lead to higherproperty transaction prices. The role of RFPs is not effective in attracting tenants asa marketing tool. Instead, professionals, including investors/buyers, owners/sellers andreal estate agencies, have been doing rent-seeking by offering rent recessions in theSeoul office market.