Already facing closures, notice prices also surge... Store owners in tears

Concerns Over Future Tax Burden Being Passed on to Tenants

Vacant stores have been steadily increasing in major commercial districts due to the prolonged COVID-19 pandemic. Myeongdong, Seoul's representative commercial area, is in a serious condition with 4 out of 10 stores empty. According to the "2021 Q1 Commercial Real Estate Lease Trend Survey" released by the Korea Real Estate Board, the vacancy rate of medium to large stores in Myeongdong was recorded at 38.4%. Rental inquiries, temporary closure notices, and business termination signs are posted on Myeongdong shops. Photo by Moon Honam munonam@

[Asia Economy Reporter Kim Hyemin] Amid a surge in vacant stores in major commercial districts due to COVID-19, store owners are facing a double burden from the sharp rise in land official prices. It has become difficult to find tenants, and the burden of property taxes has also increased. Although not immediate, there are concerns that the increased tax burden could be passed on to tenants if the commercial district economy recovers.

According to the individual official land prices nationwide as of January 1, released by local governments on the 31st, the average individual official land price for 879,402 parcels in Seoul rose by 11.54%. This is 3.29 percentage points higher than last year's 8.25% increase. The double-digit rise in Seoul's individual official land prices is the first in two years since the sharp 12.35% increase in 2019. Official land prices rose in 97.8% of all parcels.

Outside of Seoul, Daegu (11.56%), Sejong (11.89%), and Gwangju (12.36%) saw individual official land price increases higher than Seoul’s. These figures significantly exceed the national average of 9.95%.

In particular, official land prices in major commercial districts in Seoul, such as Myeongdong, surged significantly. The Nature Republic site in Myeongdong, Jung-gu, Seoul, recorded an official land price of 206.5 million KRW per square meter, maintaining its position as the highest-priced site nationwide for 18 consecutive years. The nearby Clue store, facing it, also rose from 199 million KRW last year to 206.5 million KRW this year. Adjacent sites such as the former Uniqlo site (191 million KRW), Adidas Myeongdong Brand Center (188 million KRW), and Tony Moly store (185.5 million KRW) also saw increases in official land prices.

The problem is that while many stores have closed due to a sharp decline in Chinese tourists caused by COVID-19, property taxes have increased. According to the Korea Real Estate Board, the vacancy rate of stores in Myeongdong in the first quarter of this year was 38%, meaning 4 out of 10 stores were closed. On the other hand, property taxes are expected to rise more than the official price increase rate (8.25%) in many places. For example, according to a simulation by Woo Byungtak, team leader of the Real Estate Investment Advisory Center at Shinhan Bank, the Nature Republic site in Myeongdong is estimated to incur property taxes of 225.17 million KRW this year. This is an increase of 23.67% (43.1 million KRW) compared to last year.

It is expected that this burden will not immediately lead to rent increases passed on to tenants. However, it is seen that it could lead to rent hikes in the long term. Team leader Woo said, "Even if rents are lowered, tenants are leaving because business is difficult, so it is hard to pass on the tax burden immediately," but added, "In the long term, it could be a factor causing rent increases."

This content was produced with the assistance of AI translation services.