Renting Business Space in South Korea
Depending on the type of business you are starting, you will most likely be in a 상가 (Commercial Building) or an un-detached building. And you might even just register your home address as your business location.
When I registered my Trade Business, “Smart Trade Korea”, I used my home address since I was only going to do exporting and provide some services. So if you are starting an exporting business, a tutoring business, a consulting business, an online sales business, or a study room (공부방), you can stop reading after this sentence. But if you are looking to start a business that requires business space that is not your home, then get ready to find your business space!
You know, I’m always confused as to how to number the steps for starting a small business in Korea, especially since there are steps that you should be doing at the same time. And renting business space can be considered the second step in this crash course because for certain businesses you actually need to have the contract lease of the business space you are renting to get your business registration number. But at the same time, if you attempt to get certifications that allow you to start the business and realize halfway that you don’t REALLY want to start the business (or can’t), then there would be no point in getting a business space because there would be no business to start.
So I advise you to find out exactly what you need to do to start your business and then lease or buy the business space you need, since you may need the space before you can actually register your business with the tax office.
*The above photo is of the “sang-ga” where my English gyosoopso was located. As you can see, it is right beside an elementary school and in walking distance to a lot of apartments. And you may not be able to see, but the building was mostly occupied by Hagwon type businesses.
Location, location, location
When my wife and I started our English Gyosoopso, we wanted to find a location that was in walking distance of some schools. That is why we chose to start our English education business in a location that was a little far from the school I was formerly employed as a native English teacher. In the short run, it was a bad idea because students that already knew who I was did not attend my small hagwon business due to the distance. However, in the long run, it was the better decision for the business because we were able to get students from three different schools as oppose to just one school. On the other hand, we didn’t need the busiest location for Flower Gift Korea. And this was mainly due to the fact that the business started off as an online business. The plan was to focus 90% or more of our efforts on online marketing and sales, so we did not need an area that was heavy with foot traffic. But we did want to be close to the flower market, so we found an area that matched what we needed.
Hiring an Agent and Signing a Contract
Once you find the general area that you want to setup your business, you will need to go to a real estate agent in that area and ask them to show you places that are available. You can technically go directly to the owner of a building, but I advise against this because you can get yourself into a bad situation. In the end, it is definitely worth it to go through a real estate agent because they will not only help you find a business space, they will help you sign the necessary papers that will protect you from scams. Unlike countries like Canada and the US where the agent fee is covered by the seller, in Korea, the buyer also pays a broker fee. The way the costs are calculated depends on whether you are renting or buying and what type of building you will rent. Since you will most likely be renting a commercial space, I will share how they calculate the broker fee for small businesses.
*You can see the word “부동산” in the image above, which is a licensed real estate broker in Korea. They are all over and usually operate from a small room. They are usually run by a husband and wife team and most often than not are residents of the area they work in.
Example of a commercial unit in a 상가 (commercial building)
Factors to consider:
Percentage agent can take as a broker fee: 0.4% – 0.9% (can be as low as 0.3% for residential building units)
Costs: Deposit Fee (You get this back when you leave), and Monthly Rent
So let’s just say you find a place where you want to start your English Gyosoopso. The real estate agent tells you that the deposit fee is 20 million won and rent is going to be 1.5 million won. You then kind of look hesitant and ask if they can bring the price down a bit. He then turns to you and says that they will lower the deposit fee to 15 million won, which you see okay with. Okay, well, let’s see what this is going to cost you:
Deposit Fee: 15 Million Won (You get this back at the end of the contract)
Rent: 1.5 Million Won (You set the payment day for the 15th of every month, but any agreed upon day is fine)
(Monthly Rent X 100 + Deposit Fee) X Percentage -> (1.5 Million Won X 100 + 15 Million Won) X 0.9%
=1.485 Million Won (1,485,000won)
*In general, agents can legally calculate 0.3%-0.9% of certain numbers calculated depending on the type of property that is involved. And it is important to note that the math for the real estate agent fee is different for other building types.
Steps You’ll Most Likely Take When Finding Your Business Space:
1. Find a real estate agent in the area you want to start your business in.
2. Tell them that you are looking for space for the specific type of business you want to start.
3. They will ask you when you plan on starting your business and what price range you are thinking of. Make sure that you say a date that is within 3 months or less because they will most likely not want to leave their office for someone who just wants to get a feel for prices or is going to start their business a year later.
4. Visit other real estate agents to get a better feel for prices and business spaces available. If you get an honest real estate agent, then I guess you can take your chances and believe that all of the possible locations have been shown, but you never know.
5. Once you find the location, it is up to you on if you want to ask for a discount on the cost of the deposit or the monthly rent (or both).
6. Once both sides agree to the terms, you sign the papers and you move into the building space on the date that was agreed upon.
*The photo above is of the lease contract for my English Gyosoopso business in Seoul South Korea. The half size paper stapled in front is a receipt for a partial payment we paid up front to solidify the deal. Every name except mine has a red stamp because I didn’t get one for the longest time since it wasn’t absolutely necessary at the time.
It is up to you whether or not you want to ask the real estate agent how much percentage they will charge for their services and see if you can pay a lower percentage. I find that it is always best to ask up front the cost of anything before you get them to do the work so you have an idea of what they will be charging. But it depends, maybe you don’t want to ask because you think they will do a better job. It’s all up to you how you go about it. I personally did not ask the real estate agents how much percentage they were taking for various reasons. In the end, we were charged a 0.9% rate for the business space for IGL English (English Gyosoopso in Seocho-dong, Seoul), and a 0.6% rate for the business space for Flower Gift Korea (Flower Shop in Yangjae-dong, Seoul). I believe the percentage can go up and down depending on the area, the size of the business space, the type of building, and the type of business you are going to start.
Leaving Your Business Space
When it comes time to expand your business, you may decide to find a bigger space. So you may end up leaving your current business space. It is common courtesy to give at least a 30 day notice. Legally, the landlord is supposed to let you know 3 months ahead of time if he or she is planning on not extending your lease, so I believe it is even more courteous to let the landlord know whether or not you are going to stay 3 months before your lease expires. But sometimes things happen and you may have to leave abruptly. If you have to leave with very little notice, it may be difficult to get your “Key Money (deposit)” back in time. The deposit you paid can be anywhere from 10 million won – 100 million won, so it is in your best interest to keep a good relationship with your landlord and try to be a courteous as possible.
*The above photo is of my wife and I (I took the photo) checking out the empty space that would become the Flower Gift Korea Shop / Work Station in Seoul South Korea. The previous business pretty much emptied everything before we moved in.
I have heard of some people having problems with getting their key money back, which is why it is worth it to go through a real estate agent when signing any papers and handing over a large sum of money to your new landlord.
Sometimes you will be required to demolish all of the walls you put up and have your office space back to looking the way it did before you moved in. However, sometimes the landlord wants to keep it as it is so that he can use the existing structure to help fill in the soon-to-be vacant office space.
In the end, you will at least have to get rid of most of the furniture and whatever things you had in your office space. And in Korea, it costs money to throw large items away. So you may have to hire some people to throw away everything for you or get a bunch of your friends to help with the process.