How to move into better office space at no extra cost
If your office lease is about to come to an end, now is a golden opportunity to move to a new place in better condition and at a central location at no extra cost.
“There is no market like Seoul in Asia now,” said Tony Yoon, the head of corporate occupier and investor services at the Korean branch of global real estate service firm Cushman & Wakefield.
Seoul’s office market has become highly favorable toward tenants, offering a plethora of premium office space owing to simultaneous urban redevelopment projects.
Major business districts in Seoul including the “Central Business District,” Yeouido and Gangnam were saturated for a long time, but the last two years saw “A-class” buildings pop up, intensifying competition among landlords.
“If you miss this market, you may not have another good chance for a long time,” said Yoon.
The supply of office space has been particularly abundant in the central business district that encompasses areas near Gwanghwamun Station and Euljiro 1-ga Station. The vacancy rate for the central business district’s prime office space was 18 percent in the first quarter, compared to Yeouido’s 5.1 percent and Gangnam’s 1.5 percent, according to Cushman & Wakefield.
For instance, it took 20 months for Center One in the central business district to have 70 percent of the building occupied. Seoul International Finance Center in Yeouido found tenants for all of its office space within six months after the completion of the building.
To win tenants, it isn’t unusual among landlords of buildings in the central business district to pay for interior fittings or to offer rent-free months.
“It is similar to a signing bonus. The resources of prestigious tenants are limited, so landlords make bold investments into those ‘anchors,’” Yoon said.
While Cushman & Wakefield had represented mostly tenants in the past, the firm announced in May that it would strengthen services for landlords who now need experts to help fill vacancies.
In such an environment, what should tenants consider when looking for a new home?
Yoon suggested securing a long-term contract — for instance, a five-year lease rather than a three-year one. A long-term contract boosts tenants’ leverage to negotiate additional benefits including rent-free months.
It also help minimizes depreciation costs for the initial investment on the new office space such as interior fittings and installation of IT systems.
In addition, tenants should negotiate a stable rate of increase in rent as the market has become increasingly transparent. For example, the rate could be linked to a consumer price index.
Yoon further recommended tenants to secure a right to be prioritized when renewing the contract. The market of the future might not be as favorable to them as it is now.
No major development projects are planned for the next five years apart from the Yongsan International Business District next to the Han River, whose fate is still mired by controversy.
In case of Gangnam in southern Seoul, the completion of the 123-storey Lotte Super Tower in Jamsil by 2015 and Pangyo’s emergence as a new IT district are expected to alleviate the saturation of the core area although their impact would be limited.
Furthermore, various “tenant improvement” programs provided by landlords should be carefully evaluated and compared for tenants to find if they are indeed good deals, Yoon advised.
He stressed that it is important for tenants to understand the current market and forecast the future market and consult experts to learn about fast-changing terms.
“There are a lot of ‘love calls,’ and in order to seize an opportunity, tenants should get a lot of advice from experts. This market won’t return soon — like the song, ‘It’s Now or Never,’” Yoon said.