“Building a transparent building DB… A shortcut to market advancement”[Real Estate Expert Roundtable] ③ Confusion among Foreign Tenants… Urgent Need for Government to ‘Increase Transparency’
- Host = Reporter Gil Jin-hong / Summary = Reporter Seol-bong Go | Published 2014-09-25 10:34:00
  
This article was published on September 22, 2014 at 10:24 The Bell paid pageThis is an article that appeared in . ◇Reorganization of the market centered on tenants...need to build a market information DB Jang Jin-taek = The office building market is being reorganized around real demand. The initiative has shifted from landlords to tenants. Rent-free and management fees should also be approached from this perspective. I recently conducted a market survey. The difference between nominal rent and actual rent is not small. There are areas where the difference is as much as 30% or more. This has a big meaning. The standard for price formation based on supply and demand has collapsed. From the perspective of the demander, it is the same as not having any guidelines. Furthermore, uncertain data created without principles and standards further causes confusion. Some tenants take advantage of this confusion to demand excessive rent-free. Therefore, information transparency is necessary. At the very least, there should be principles and standards. The office building market tends to be excessively centered on building owners. Efforts are needed to create a database of market information. Society = Is there no way the government can approach this institutionally? Lim Chae-wook = The government needs to step in and create guidelines. Everyone knows that there is a problem. For example, in the case of apartment areas, the exclusive area is fully disclosed. When ordinary people receive an apartment, they know the actual usable area and determine if the price is reasonable. However, this is not happening in the office building market. Rather than making it easy for buyers to understand, they are making it difficult. The government needs to make it transparent by requiring public institutions to use standard lease contracts for buildings they own. Yoon Won-seop = The perspective is different. Apartments are real estate for the general public. However, office buildings are a field that can be approached by people with a certain level of analytical ability. All office building customers can already calculate the actual cost of the rental area. If the government keeps intervening, it may actually lead to mass production of regulations.
 | Lim Chae-wook, managing director of Zenstar (right), said that it is not normal for management fees to be included as revenue when evaluating the value of office buildings in Korea. Jang Jin-taek, director of Remax Korea (center), and Yoon Yeo-shin, CEO of Zenstar (left) also insisted that transparency in the use of office building management fees should be secured. |
Jang Jin-taek = If the industry really wants to become advanced, it must minimize information distortion. Information monopolization can later create a wider gap with the market. Office building-related companies must be provided with an environment where they can focus on marketing. Right now, those who collect information and those who do sales activities are mixed together, causing side effects. The bigger the information gap, the greater the damage to companies. The government must move toward producing and managing office-related data. Yoon Yeo-shin = I agree that we should unify the standards. One way is to refer to reports from many foreign companies. We need to clarify and unify the standards, such as the grading criteria. Jang Jin-taek = Prime-class buildings can be managed by large companies. They cannot manage the remaining small and medium-sized buildings. That is why information is distorted. The survey included only some prime-class and A-class buildings, but the announcement was made as if all lower-tier 90% buildings were surveyed. The problem is that the trend of prime-class buildings is seen as if it is the overall market situation. Yoon Yeo-shin = That's right. There is such a problem. Later, it can lower the country's credibility. People come to the Korean market after only looking at reports, but if the reality is different, they don't trust the Korean data. Then, the country's credibility will drop. ◇Opaque management fee details must be disclosed
Lim Chae-wook = I had a question while working in the US for 7~8 years. In the Korean market, no one talks about management fees. Management fees should normally be disclosed in full and settled at the end of the year.
In the US, after the fiscal year ends, the expenses for that year are calculated and settled. We should do the same, but investors and landlords try to make a profit with management fees. They say they lost money with rent-free, so they should make up for it with management fees. Tenants can't even know how much they spent on annual management fees.
Investors also take management fees into account when evaluating the value of a building. The valuation should be based purely on rent, but management fees are considered as income. That is why foreigners say that it is difficult to trust any information from Korea.
Yoon Yeo-shin = When a tenant uses a specific building as a whole, the issue of management fees always comes up. There are often cases where tenants request disclosure of management fee details. In reality, the landlord has no obligation to disclose them. Yoon Won-seop = In foreign countries, tenants ask for details on management fees. They ask for detailed related clauses in the contract. However, in Korea, management fees are not disclosed, so foreign companies were initially confused. In short, they wondered why they were not disclosed. Now, foreign companies add management fees and rent to determine the actual cost. Therefore, management fees and rent are being adjusted to an appropriate level. They are becoming more and more reasonable. In fact, that is why we need to use professional companies.
Lim Chae-wook = Unlike new tenants, tenants who have already signed long-term contracts are bound to be dissatisfied. Let's say that rent and management fees increase every year, but the level of service actually decreases. However, if you can't find out the management fee details, there is no basis for requesting improvement. This is an area that needs to be improved urgently.  | There have been claims that the government needs to play a certain role in order to advance the Korean office building market. The opinion is that objective market data needs to be produced and standard contracts need to be introduced. On the other hand, there are concerns that government intervention in the market could lead to the creation of unnecessary regulations. (From left, Urban Asset CEO Jeong Seong-jin, Cushman & Wakefield Korea Managing Director Yoon Won-seop, Money Today The Bell Deputy Director Gil Jin-hong, Zenstar CEO Yoon Yeo-shin, and Remax Korea Director Jang Jin-taek.) |
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Yoon Won-seop = There are cases where tenants move out for this reason. There are cases where complaints about poor building management lead to office relocation.
Yoon Yeo-shin = When I go to external seminars, I often ask companies who should pay the higher rent, the new tenant or the existing tenant. Common sense tells us that the new tenant should pay the higher rent. However, that is not the case in the current Korean market. The existing tenant raises the rent every year, while the new tenant enjoys benefits such as free rent. Now is the time to think about incentives for long-term tenants.
Yoon Won-seop = In foreign countries, there is a contract renewal clause. If the market environment changes after a certain period of time, you can request a change in the contract terms. For example, if the rent in the surrounding area drops significantly after the tenant moves into the building, you can request a contract change. Conversely, the landlord can also request a contract change.
Jeong Seong-jin = After the global financial crisis in 2008, many companies took on debt as construction companies collapsed one after another. Many companies took on buildings just to collect management fees. The profit from management fees is usually estimated to be around 15% of total costs.
Society = How do you think the office building market will flow in the future?
Jeong Seong-jin = The office building market has been in a slump since 2011. I felt this when I saw the actual situation firsthand. There are too many industrial complexes in our country. As supply continues in Magok, Guro-Gasan, Pangyo, and Gwanggyo in Gyeonggi, the Seoul metropolitan area market is dead. Gangnam, which has financial resources, is holding on. I think the office market itself will shrink further in the future. In order to survive, management through professional brokerage firms is necessary.
Yoon Yeo-shin = Now, the prime and A-class building market has entered a stabilization phase. Except for Parnas Hotel, Renaissance Hotel, Hanjeon site, and Lotte World Tower, there will be no supply for the time being. Major tenants prefer newly built prime buildings. Demand is overflowing even without rent-free. There is also demand for relocation due to headquarters remodeling. In particular, there are many buildings scheduled for remodeling in the city center.
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