[Practical Finance] The Essentials of Small Building Investment You Need to Know

Even Minor Location Differences in the Same Commercial Area Determine Investment Success
Located on 8~12m Wide Main Roads is 'Good'

More people are investing in small office buildings. Compared to medium and large office buildings, the investment capital is smaller, and there are fewer regulations compared to housing such as apartments. However, investing in small office buildings requires considerable know-how. Even within the same commercial district, the success or failure of an investment depends on subtle differences in location, management condition, and tenants. Especially in the current situation of high interest rates and a continuing real estate market downturn, investors need to be more cautious.

Asia Economy sought advice from Odonghyeop, CEO of Building Road, to learn the key know-how for investing in small office buildings.

First, CEO Oh pointed out location as the most important factor to consider when investing in small office buildings. He emphasized that since the value of small office buildings varies depending on whether a commercial district is formed, the building’s location and surrounding environment are crucial. He particularly recommended focusing on small office buildings adjacent to roads with a width of 8 to 12 meters. He said, “Commercial districts are closely related to roads, and places adjacent to roads with a width of 8 to 12 meters are advantageous for the development of commercial districts.”

Stores along roads with a width of 8 to 12 meters provide the best environment for tenants to operate businesses. These roads typically have no clear separation between sidewalks and roadways, and commercial districts on both sides of the road grow together. The preferred road layout is a grid pattern based on main roads, with straight streets where signs of stores at the beginning and end of alleys are visible.

It is also necessary to analyze the types of businesses formed around the small office building. Areas with businesses frequented more by women than men, and by young people rather than middle-aged or older adults, tend to have higher potential for building value appreciation. He analyzed, “Compared to general restaurants, convenience stores and cafes, areas with many women’s clothing or accessory shops can command higher rents, making them commercial districts where the building’s value can increase later.”

Additionally, areas with low slopes and many newly built or remodeled buildings are considered promising regions where high-quality tenants can move in, leading to rent increases. He also explained that to minimize risks before investing in small office buildings, it is necessary to understand what kinds of stores were previously there and how they have changed this year.

As for investment areas, when the investor’s home is in the Gangnam area, the recommended order is Gangnam-gu → Seongdong-gu → Seocho-gu → Yongsan-gu → Songpa-gu. When the home is outside the Gangnam area, the suggested order is Gangnam-gu → Seongdong-gu → Mapo-gu → Yongsan-gu → Seocho-gu → Songpa-gu. These areas are advised as regions where building price increases are expected in the future.

Improving buildings through remodeling, new construction, expansion, or change of use is also a way to increase the building’s value. CEO Oh said, “Unlike apartments, buildings can significantly increase in value just by changing tenants or remodeling. Especially after remodeling, rents can be raised to about 80% of new construction levels at half the cost of new construction.”

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