A Study on the Appropriate Rent of Restaurant Franchises Lease Small Commercial Real Estate in Korea

Abstract

Purpose: The current rent payment structure only serves as a contract rent that does not take into account the tenant’s profits of the franchisee. Therefore, this study studies the appropriate value of tenants and lords as the operators of different businesses in the space of small commercial real estate. Research design, data, and methodology: In the case of the same franchise brand, the profit and loss structure of sales and franchisees differs depending on the region and the commercial area. Therefore, it is necessary to set the appropriate rent considering the profit and loss of the franchisee rather than judging the outward sales of the franchise as a measure of rent evaluation. So, to calculate the the appropriate rent, The wage income of each region was selected as a variable representing the expected income of the franchisee, and the weighted index was given to the difference, and the appropriate rent was calculated by adding the current rent. Results: If the appropriate rent By Region and industry is low in the proportion of negative (-), or has a positive (+) value, it is the case where the profit and loss of the franchisee business is good in the area. In these cases, the lords may consider rent increases, and it is necessary to focus on income returns separately from capital returns. Implications: The profit and loss level of franchisees By Region and industry derived from this study can be the business indicators of franchisees. The appropriate rent will be useful information that can be used for investors to implement win-win rental strategies or to refer to rent negotiations in relation to key franchise stores, even before investment or during the lease operation period.