Office Rent Determinants in the Seoul Area, Korea

Abstract

This paper attempts to figure out the rent determinants of the office market in the Seoul Area, experiencing radical changes after the IMF bailout program. Employing the hedonic price model with the empirical data, this paper compares two different dependent variables: the potential gross income, and net operation income reflecting the present value. This paper also attempts to analyze the impacts of Chonsei system on rent determination, and reviewes how the segmentation of sub markets in the Seoul area influences rents. The results of office rent determination model estimation can be summarized as follows: First, among the physical characteristics of buildings, the size of the building is the important determinant of the office rent level. Second, the rents are mostly influenced by the type of contract. Third, there exist the distinct differences in sub markets of the Seoul Area. Such results can be attributed to the history and pattern of the office market growth and the type of the building owners. Fourth, it is difficult and sometimes debatable to define “rent” mostly due to the “Chonsei” system in Korea.