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

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.