This study analyzed whether there is a filtering effect in the Seoul office market. The face rent of office in the central business districts(CBD) of Seoul has been steadily raised after the early 2000s, although the vacancy rate in office rental market has been increased by the supply boom of S-grade office buildings. Such an external explanation has a limitation in that it does not reflect favors such as rent-free and fit-out that exist in the office market. Therefore, this study tried to examine the time-series change of the effect of the S-grade(the highest-paid rent) office building supply and the vacancy rate, face rent, and effective rent of each sub-markets depending on building grades.
This research analyzes how the supply rate of S-grade office buildings influences the effective rent, face rent, and vacancy rate for each class in the office rental market. By using the data from 2007 to 2015 while the S-grade market has experienced a supply boom, the analysis revealed a causal relationship between the supply of S-grade office buildings and the effective rent of A-grade offices at the 10% significance level. In contrast, no causal or significant relationship to other sub-rental markets was observed. The empirical results showed that when an S-grade office building is supplied, the A-grade office owner is strategically attracting tenants to avoid increasing vacancy rate. Because the target area of this study is limited to the CBD of Seoul, a more detailed analysis of the filtering effect of the overall market by grade is needed through further studies.