Buy It and It'll Run Itself?... The Inconvenient Truth That Building Owners Ignore [Kim Yongnam's Real Estate Asset Management]

The small to medium-sized building market, known as 'little buildings,' has been hit hard by the economic downturn and lifestyle changes. As vacancy rates rapidly increase, many building owners are facing the practical challenge of declining profits.

In the recent real estate market, the term 'building poor' is no longer unfamiliar. This is because the number of building owners who, despite owning buildings, are struggling with loan interest and vacancy burdens, leading to worsening cash flow, is rapidly increasing. Many building owners attribute the cause to external factors such as high interest rates, economic slowdown, and oversupply. While it is true that these factors have an impact, the reality is far more structural than can be explained by external factors alone.

The relocation to knowledge industry centers, which have functioned as alternatives to small and medium-sized buildings, is also contributing to the increase in vacancy rates. Knowledge industry centers, boasting relatively affordable rents and maintenance fees, ample parking spaces, and designs specialized for business operations, have quickly changed the choices of small and medium-sized enterprises, startups, and professional tenants. As a result, part of the demand is shifting away from the traditional small and medium-sized building market, further increasing the burden of vacancies.

The current phenomenon of building poor is often not merely the result of a simple economic downturn, but rather stems from a 'management failure' due to an inability to properly understand the changed market structure. Past successful experiences and complacent expectations are coming back as today's losses.

The most common misconception is the belief that “the formula for success from the past is still valid.” There was a time when simply having a good location would naturally attract tenants. Supply was limited, commercial districts were in a growth phase, and merely owning a building was a competitive advantage. But now, things are different. The number of newly constructed buildings has increased, tenant demands have become more stringent, and both corporations and self-employed individuals prioritize cost efficiency above all. Nevertheless, if one insists on sticking solely to old methods, vacancies are unavoidable. There is nothing more dangerous than responding to a changed market with outdated strategies.

The second misconception is the belief that "lowering rent results in greater losses." Many building owners worry that once rents are reduced, it will be difficult to raise them again later and that the building's value will decline, putting them at a disadvantage when selling. Because of this, quite a few conclude that it is more advantageous in the long run to maintain vacancies. On the surface, this logic may seem reasonable. However, there is a significant blind spot hidden in this judgment.

The rental market is evaluated based on the "actual transaction price," not the "desired price." Buildings with prolonged vacancies are perceived in the market as assets that have already lost their competitiveness, even if they nominally maintain high rental rates. The bigger problem is that while vacancies persist, no rental income is generated, but interest expenses and maintenance costs continue to accumulate. The vacancy strategy chosen to uphold rental prices actually undermines profitability and weakens asset value.

The third misconception is the belief that “once you buy a building, it will manage itself.” This is the most dangerous attitude that turns a building from a revenue-generating asset into a neglected piece of real estate. Buildings without a systematic asset management strategy lose their competitiveness even faster during economic downturns. As vacancies increase, maintenance is pushed to the back burner. As a result, the satisfaction of existing tenants declines, further departures occur, and the building becomes stigmatized in the market as a “problematic building.” Once this vicious cycle begins, much more time and money are required to recover.

The key point is that a building is no longer simply an asset to own, but a business that must be actively managed. In today’s commercial real estate market, building owners must become entrepreneurs rather than merely asset holders. They need to shift their role to that of business operators who analyze the market, design leasing strategies aligned with shifts in demand, and manage tenants. Whereas past building investments generated returns passively over time, the current market environment makes it difficult to survive without constantly revising strategies.

The way to avoid becoming a building poor is not through sensational investments or vague expectations. It requires a market understanding based on numbers and data, flexible leasing strategies, and proactive asset management. While no one can control external factors, how a building is managed is entirely up to the building owner.

The issue now is not the market, but how the building is being 'managed.'

<Korea Economic The Moneyist> Kim Yongnam, CEO and President of GlobalPMC Co., Ltd.