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Rent-Seeking by Rent Concession: An Analysis of Rent-Free Periods in the Seoul Office Market

Author

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  • Kang-Min Ryu

    (Hanyang University)

  • Hyung Min Kim

    (The University of Melbourne)

Abstract

Rent-free periods (RFPs) have been used in property markets worldwide especially during economic downturns as a discount pricing strategy in marketing. However, this research study proposes that RFPs play a role in increasing or, at least, sustaining face rent that can be reflected in the property price. This study focuses on the Korean office market which has experienced growing vacancy rates since the global financial crisis possibly leading to a decrease in effective rent with greater RFP incentives. In this period, face rent has increased as offering extended RFPs. Hence, high vacant rates with high face rent have been observed, which is seemingly contradictory against the commonly known rent-vacancy negative relationship. This research analyses the rent, transaction prices and RFPs during 2003 – 2017 in the Seoul office market. The findings reveal that positive future anticipations of owners and investors are reflected in extended RFPs to sustain and increase face rent that will eventually lead to higher property transaction prices. The role of RFPs is not effective in attracting tenants as a marketing tool. Instead, professionals, including investors/buyers, owners/sellers and real estate agencies, have been doing rent-seeking by offering rent recessions in the Seoul office market.

Suggested Citation

  • Kang-Min Ryu & Hyung Min Kim, 2021. "Rent-Seeking by Rent Concession: An Analysis of Rent-Free Periods in the Seoul Office Market," International Real Estate Review, Global Social Science Institute, vol. 24(4), pages 633-658.
    • Handle: RePEc:ire:issued:v:24:n:04:2021:p:633-658
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    References listed on IDEAS

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    1. Marcus Allen & Ronald Rutherford & Thomas Thomson, 2009. "Residential Asking Rents and Time on the Market," The Journal of Real Estate Finance and Economics, Springer, vol. 38(4), pages 351-365, May.
    2. Krueger, Anne O, 1974. "The Political Economy of the Rent-Seeking Society," American Economic Review, American Economic Association, vol. 64(3), pages 291-303, June.
    3. John L. Glascock & Shirin Jahanian & C. F. Sirmans, 1990. "An Analysis of Office Market Rents: Some Empirical Evidence," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 18(1), pages 105-119, March.
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    Cited by:

    1. Kazushi Matsuo & Morito Tsutsumi & Toyokazu Imazeki, 2023. "Asymmetric Dynamics of Rent and Vacancy Rates in the Tokyo Office Market," International Real Estate Review, Global Social Science Institute, vol. 26(1), pages 1-41.

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