Beginners guide to Seoul office lease (original) (raw)

There were a total of 250 buildings of over 30,000 square meters in Seoul as of December 2010. Their combined gross floor area is 14,109,435 square meter, of which CBD accounts for 35.9 percent, GBD 24.0 percent and YBD 13.4 percent.

By Sue Lee

For international companies to enter the Korean market, one of the first decisions to make is where to locate their office in Seoul. Here, the three major business districts that are densely concentrated with office buildings are CBD (Central Business District at city center), GBD (Gangnam Business District) and YBD (Yeouido Business District). Around 70 percent of Seoul buildings with a gross floor area of 30,000 square meters are situated in those three districts.

In particular, CBD, encompassing an area stretching from Gwanghwamun and Seoul City Hall to Namdaemun and Seoul Station, is home to headquarters of major domestic companies, news agencies, law firms and financial institutions including domestic and international insurers. With Cheong Wa Dae (the Blue House) and central government complex in the vicinity, there are also quite a number of government agencies located in this area.

CBD houses around 44 percent of all prime office buildings in Seoul and, also as the center of an over 600 year old historic city, this area is within a walking distance from Gyeongbok Palace, as well as Myeongdong, the No. 1 shopping area in Seoul. As such, the CBD area is the most prominent business district in Seoul both in name and actuality.

GBD (Gangnam Business District) used to be a backward farming area until only 40 years ago. However, this area has established itself as the center of education, business and shopping in Korea and is packed with office buildings on Gangnam-daero and Teheran-ro, centered around the Gangnam Station area, which attracts a traffic of more than 200,000 people every day.

In GBD, companies in various industries, such as IT, manufacturing, consumables and pharmaceuticals, are located. For overseas cosmetics, luxury goods and fashion-related companies, GBD is an area where they need to make their presence known. In Cheongdam-dong and Apgujeong-dong, luxury brands are scrambling to open flagship stores.

YBD (Yeoido Business District) can be divided into west Yeouido, with the National Assembly at the center, and east Yeouido where Seoul International Finance Center is planned for completion in Q4 2011. The Yeouido area is packed with bank headquarters and other financial institutions including, securities and asset management companies, as well as finance-related government agencies, such as the Korea Exchange and Financial Supervisory Service.

Look for a discount

Costs are one of top concerns for both domestic and international companies when selecting an office space. However, while domestic companies tend to pay a high security deposit in exchange for a low rent, foreign businesses first entering the Korean market, not accustomed to the “jeonse” system in Korea, prefer a low security deposit, even if they have to pay a high rent _ the security deposit is generally ten times the monthly rent in Korea, while it’s only two to three times in many other countries.

When the budget range for rent is set, public transportation (or sometimes CEO’s decision) is most likely to be the deciding factor for domestic companies. But foreign companies make decisions based on professional management, building condition and other details. As for some renowned international companies with environment-friendly corporate policies, LEED Certification is a very important factor when choosing a building.

In the aftermath of global economic woes in 2008, many companies streamlined their businesses and some international companies closed their offices in Seoul. In addition, domestic firms virtually stopped recruiting new employees. This caused huge vacancies in many Seoul buildings.

Even though such vacancies have been gradually absorbed with the recent economic recovery, the buildings that were planned before the economic crisis are substantially pushing up the vacancy rate. According to Savills data, CBD will see additional 727,000 square meters of new office space available in the market by 2011. GBD will have another 109,000 square meters of vacant space and YBD 89,000 square meters. There are currently many construction projects well under way in GBD and YBD areas.

Such a huge supply from new development projects is good news for tenants seeking office space. However, for landlords, this means that they have to solicit tenants instead of choosing from a waiting list. Landlords, with supply surpassing demand in the market, are striving to attract tenants to reduce their vacancy or maintain their current occupancy rate, offering extra benefits to tenants.

For instance, hardly one-month rent-free period was given for one year of leasing in the past but now most landlords are providing two-month rent free period. Some buildings are providing even allowances for relocation and interior fit-out. As such, if a company sets a strategy to relocate its office or renew its current lease based on clear understanding of the current lease conditions and market situation, it will be able to save on occupancy costs for the next 5 to 10 years through negotiation with the landlord.

It is also a good idea to hire a professional real estate company that provides comprehensive lease agency service. Such a company will conduct market researches, find a building within the set budget, negotiate lease conditions and review and sign a lease contract for its client.

Sue Lee is the Director of Commercial Leasing Services at Savills Korea.