COVID-19 and Commercial Lease Protection Act Double Burden... Store Owners Endure with 'Short-Term Lease'

Garosugil, Cheongdam, Rodeo, etc... 1 in 10 Stores Are Vacant
Reluctance to Lower Rent Despite Vacancies Due to '10-Year Lease Guarantee' Law
Short-Term Contracts Like Pop-Up Stores as a Last Resort

On the afternoon of the 1st, a building on Garosugil Street in Sinsa-dong, Gangnam-gu, Seoul. A temporary store for promotional purposes, called a "pop-up store," is located here. It opened in April and is scheduled to operate only until the end of this month. (Photo by Ryu Taemin)

[Asia Economy Reporter Ryu Tae-min] "The abundance of vacant stores is not solely due to COVID-19. The Commercial Lease Protection Act also plays a significant role. In reality, landlords cannot evict tenants at will for 10 years, so who would lower the rent to attract tenants?" (Representative of a real estate agency near Sinsa-dong, Gangnam-gu, Seoul)

Recently, the reporter visited a three-story building located on the main street of Garosu-gil in Sinsa-dong, Gangnam-gu, Seoul, where two cosmetic stores were operating. These are temporary promotional stores called 'pop-up stores,' which started in April and will operate for only three months until the end of this month. Originally, this store was a flagship store of a major clothing brand that operated for over six years. However, due to the spread of COVID-19, it closed in October last year and remained vacant for five months. The building owner, reluctant to leave the store empty until finding a new tenant, signed a short-term lease contract as a last resort.

This is not the only case. In major streets of Gangnam, including Garosu-gil, Cheongdam, and Apgujeong Rodeo, buildings with 'For Lease' signs were easily found. This is because many large clothing and cosmetic brands withdrew their stores last year as customer visits stopped due to the spread of COVID-19.

According to the Korea Real Estate Board's commercial real estate leasing trend survey for the first quarter of this year, the vacancy rate of medium to large commercial buildings around Sinsa Station, where Garosu-gil is located, was 11.5%. This is 1.4 percentage points higher than the same period last year (10.1%). The vacancy rates in nearby Dosan-daero area were 14.2%, Nonhyeon Station 19.9%, Cheongdam 16.3%, and Apgujeong 10.3%. This means one out of every ten stores is vacant.

An announcement seeking a short-term tenant is posted at a first-floor store near Sinsa Station on Seoul Subway Line 3 in the Garosugil area of Gangnam-gu, Seoul. (Photo by Ryu Taemin)

“Reluctance to Lower Rent Due to ‘10-Year Lease Guarantee’ Law... ‘Surviving with Short-Term Leases’”

The industry explains that the strengthened Commercial Lease Protection Act (Sangimbeop), which is called the number one law for commercial districts, also significantly affects the vacancy crisis in Gangnam. The representative of real estate agency A in Sinsa-dong said, "Due to the revision of Sangimbeop, landlords have to stay with new tenants for at least 10 years," adding, "Many landlords prefer to leave the store vacant rather than lowering the rent, waiting for a proper tenant."

Given this situation, more buildings are accepting short-term lease contracts to compensate for losses during vacancy periods. Buildings with signs advertising ‘short-term leases’ were also noticeable. A representative of real estate agency B in Sinsa-dong said, "Many first-floor commercial spaces have monthly rents exceeding 10 million won, so it usually takes a long time to find new tenants," adding, "Recently, real estate agencies specializing in ‘short-term leases’ have even appeared nearby."

In fact, when the ‘BTS pop-up store’ opened on Garosu-gil at the end of last year and gained huge popularity among young people, companies seeking to sign short-term promotional contracts there increased rapidly. This year, various companies, from clothing brand ‘Lacoste’ to ‘Goose Island’ and ‘Joe Loves,’ have also competed to open pop-up stores.

However, since these are only short-term lease contracts lasting one to two months, concerns have been raised that they are not a fundamental solution to the prolonged vacancy problem. Real estate agency B in Sinsa-dong said, "Even if short-term lease stores are successful, the effect is only temporary," adding, "A realistic solution considering the situations of both landlords and tenants is needed."