Lack of Office Space in Seoul
By Sean Hayes (Korea Times 11-26-2008)
Korea, in this global economic turmoil, must become a more attractive location for foreign investors. The answer to attracting more foreign capital is obviously to improve the overall investment climate.
Along with the ubiquitous mention of tax reductions, regulatory revisions, and an improved living environment; Korea also must reduce expenses in doing business in the country including access to affordable office space.
The access to affordable office space may be as important for the short- and long-term development of the economy and the nation's goal of becoming the hub of Asia as many of the regulatory, legal, political, and economic reforms that have been proposed by the Lee Myung-bak administration.
For example, a few of my clients mentioned that one of the major obstacles to expanding their presence in Korea is the lack of office space. One, in particular, is simply unable to find office space near their present address and is forced to delay recruitment.
I have also heard, over the years, from many medium size companies shocked at finding the price of quality real estate, in Seoul, to be on par with their foreign headquarters.
The situation is also troubling for local companies. My law firm leases four floors in a prime building in Samseong-dong that is 100 percent occupied. The firm is salivating at the chance that they may be able to rent a part of a floor within the next couple of months.
The situation is well represented in Colliers International estimates, in its last report, that the vacancy rate in Seoul's central business district, the Gangnam business district, and the Yeouido business district of prime buildings is 0.36 percent, 0.53 percent, and 0.82 percent respectively and the net effective price per 3.3 square meters, in these same areas, respectively, is 220,000 won, 217,000 won, and 170,000 won.
This low vacancy rate and high price places Korea at or near the top of lists of cities with the highest office occupancy rates and high amongst lists of the most expensive office rental rates.With President Lee's experience in the construction industry, successful leadership of the Seoul metropolitan government, and proactive style, hopefully, he will set his staff in motion to address a problem that is pushing some foreigner companies to forego investment in Korea and encouraging others, already in Korea, to not increase investment in human capital.
Korea, accordingly, must increase the supply of quality office space in the three major business districts and also attempt to curb price increases.
Some of the issues that the administration should address in order to achieve this goal is how to expedite zoning and inspection procedures, and ensure access to government guarantees to the experienced, innovative, but now cash strapped developers. Additionally, it must promote the conversion of underutilized retail space to prime office space, convert lower quality office developments into higher quality prime office spaces, and reduce the tax and regulatory obligations on landowners.
If Korea, during these difficult times, is able to make itself more attractive than its neighboring investment locales it will overcome this crisis with a net gain. Hopefully, the administration will look outside the box and consider the total investment costs associated with doing business in Korea including the lack of affordable quality office space in Seoul.