Is a Rent-Free Period just a “carrot”?

Abstract

A Rent-Free Period (RFP) is offered as an incentive to attract tenants usually commencing at the beginning of the lease. The RFP has been used worldwide in the property market especially during the economic downturn when vacant rates are high as a discount pricing strategy for marketing. However, this research proposes that the RFP plays a role in increasing or, at least, sustaining face rent that can be reflected in the property price. This research pays attention to the Korean office market that has experienced growing vacant rates since the Global Financial Crisis leading to a decrease in effective rent with greater RFP incentives. Nevertheless, in this period, face rent has increased whi..