[Real Estate] ‘Section Office’, which sells office buildings by dividing them into pieces… Low investment cost and high liquidity
As the trend of downsizing in the apartment sales market spreads to the profitable real estate market, 'section offices', which split buildings up and sell them, are becoming popular. In the past, it was common to buy and sell buildings as a whole. However, these days, as office buildings (offices) are overflowing with vacancies, the number of units being sold in various sizes has increased. Sometimes, one or two floors of a large building are sold separately, and one floor is sometimes divided into smaller rooms. The sale size varies from as small as 85㎡ (25 pyeong) to as large as 330㎡ (100 pyeong).
Section offices were also popular in the mid-2000s. Representative examples include ‘Hanshin Intervalley 24’ in Yeoksam-dong, Gangnam-gu, Seoul, ‘Geumgang Tower’ in Daechi-dong, and ‘Landmark Building’ in Samseong-dong. Around the same time, section offices were popular in the first new towns such as Bundang City and Ilsan New Town. However, as the housing market entered a boom period, section offices did not receive much attention as an attractive investment destination compared to apartments.
The reason section offices, which had been stagnant for a while, are again attracting attention is because investment using profitable real estate is becoming popular due to the recent low interest rate trend.
Hanshin Intervalley and Geumgang Tower are representative examples.
Stable rate of return of 6~8% per year possible
Accessibility and vacancy rate must be carefully considered.
Section offices have the advantage of lower initial investment costs and lower entry barriers to investment because the space is divided into small units and sold separately, whereas a general building is sold as a whole. No matter how small the building, purchasing it as a whole requires funds ranging from several billion won to tens of billions of won. However, section offices can be sold for at least 200 to 400 million won depending on the area. The return on investment is higher than when purchasing the entire building.
Another advantage is that it is easier to rent than an officetel. Because section offices are built for 100% business purposes, unlike officetels, each room does not include facilities such as bathrooms or kitchens that are not necessary for work. This means that even with the same supply area, space can be used more efficiently than an officetel. Jang Jin-taek, director of Remax Korea, explained, “It is more advantageous to rent than an officetel because tenants prefer a dedicated office with a more comfortable working environment.”
What is the difference between the Section Office and the Knowledge Industry Center (formerly an apartment-type factory)? Knowledge industry centers have restrictions on the industries they can occupy, such as information technology (IT) and biotechnology (BT). Additionally, individual investors cannot purchase for the purpose of generating rental income.
On the other hand, section offices have no restrictions. In some cases, office owners lease multiple blocks together to companies that need large-scale offices, such as banks or financial companies, from a method of attracting one company to one small block. For example, the 1st and 2nd floors of 7 to 8 blocks are leased all at once. It is also beneficial for office owners as companies renting large areas tend to be larger and want long-term leases.
In the Gangnam area, Hanshin Intervalley 24, Geumgang Tower, and Landmark, which were introduced earlier, are representative examples of the sale of separately registered section offices, and are currently known to be generating stable annual returns in the range of 6 to 81 TP3T. Sales prices vary depending on location, but buildings in the Gangnam area range from 12 to 16 million won per 3.3 m2 based on total floor area.
For example, in the case of Hanshin Intervalley 24, the selling price per 3.3㎡ based on total floor area is around 15 million won. An 82㎡ (25 pyeong) office is priced around 320 to 350 million won, a 132㎡ (40 pyeong) office is priced around 570 to 580 million won, and a 330㎡ (100 pyeong) office is priced around 14. The market price is in the billion won range.
An official from Real Estate Agency A in the Yeoksam-dong area said, “The rent for this building is about 1.5 to 1.6 million won per month, with a deposit of 15 million won for 82㎡.”
However, in the Gangnam area, there are not many properties for sale and no new sales are scheduled. Instead, section office sales products are steadily appearing in newly created business districts in Seoul and the metropolitan area.
Yang Ji-young, head of research at Real Today, predicted, “Supply is taking place in the Magok district of Gangseo-gu, Seoul and the Munjeong district of Songpa-gu, etc.” and added, “These areas are areas where large companies and small and medium-sized companies are scheduled to move in, so rental demand is expected.”
The most active area for section office sales is the Magok district. This year, in the Magok district, ‘Magok Central Tower (C6-4 block)’ and ‘Queen’s Park Nine (C7-2, 3, 4 blocks)’ are selling section offices side by side. Both locations are located near Balsan Station on Subway Line 5 and are easily accessible from Olympic-daero and Gonghang-daero, making transportation convenient. Director Jang Jin-taek evaluated, “As large-scale research and development (R&D) centers of 10 LG Group affiliates are scheduled to move into the Magok district, we can expect demand for rentals in the background.”
Magok Central Tower will be built with 3 floors underground and 12 floors above ground, with shops on the 1st to 4th floors above ground and business facilities on the 5th to 12th floors above ground. The business facility being sold as a section office consists of a total of 152 rooms with an exclusive area of 42 to 87 m2. Completion is scheduled for the second half of next year, which is similar to the time when major companies in the Magok district will move in. The average selling price is 8 million won per 3.3㎡. Depending on the office area, the price ranges from 180 million to 350 million won.
Queens Park Nine has a total of three buildings. Like Magok Central Tower, shops will be built on the 1st basement floor to the 4th floor above ground, and business facilities will be built on the 5th to 13th floors. Recently, a large contract was concluded in which the entire floor of one building was sold. The office facilities have a total of 290 rooms ranging from 39 to 106 m2, and the sale price is in the range of 219 million to 520 million won.
In Munjeong District, Songpa-gu, Seoul, 'Munjeong Legal Plaza', located in the 3-2 block in front of the main gate of the Seoul Eastern District Court and Eastern District Prosecutors' Office, is selling a section office. The selling price per 3.3㎡ is in the range of 8.9 million to 10 million won, and you can move in starting in September. ‘Munjeong Hwaeom Tower’, located in nearby block 3-3B, is also selling small-sized offices. The 5th floor of the building, which has 3 floors underground and 11 floors above ground, is comprised of educational and research facilities, and the 6th to 11th floors are business facilities for legal affairs and tax-related services. It is characterized by the ability to create a one-on-one customized space according to the characteristics of the company moving in.
Although section offices have a lower investment entry barrier than existing office buildings, vacancy risks cannot be avoided. As it is a newly created business district, there is also a disadvantage that it is difficult to predict rental prices or vacancy rates.
“In areas with excessive supply, there are many cases where vacancies continue to rise and the rate of return falls accordingly, and Magok and Munjeong districts are no exception. Before investing, it is necessary to carefully consider the possibility of vacancy, including determining how much office space in the same section is being supplied near the investment office.” This is advice from Hwang Jong-seon, CEO of Al Korea Asset.
Transportation conditions such as public transportation such as subways and buses, and roads must also be considered. This is because as accessibility decreases, the demand for offices inevitably decreases. As we operate small-scale offices, if there are different owners within a building, it can be difficult to operate, manage, or remodel. In this case, it is a good idea to find out if there is a company that will lease and operate the entire building.
Even if there is a place that advertises with the phrase 'section office sale', it is also essential to check whether the boundaries for each office room are clear and whether it is a 'section registered' product with the floor and number clearly specified. Investors can buy and sell ownership of registered offices like apartments. However, if it is not a division registration, there is a possibility that an office building or one floor is tied up as ‘joint ownership’. You should also be aware that problems may arise if you try to exercise your property rights later.
[Reporter Jeong Da-un jeongdw@mk.co.kr / Photo: Reporter Seong-joong Kim]
[This article is from Maekyung Economy No. 1803 (dated 2015.04.15~04.21)]
[ⓒ Maeil Business News & mk.co.kr, unauthorized reproduction and redistribution prohibited]
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