FOREIGN INVESTORS PILE INTO LOGISTICS ASSETS
Foreign investors purchased US$ 3.2 billion worth of Korean commercial real estate in 2018, an increase of 14% y-o-y. While investment in retail properties fell marginally, purchases of logistics assets increased by 73% y-o-y.
Most logistics properties purchased by foreign investors were Grade A assets and were acquired prior to completion. Investment from UK-based capital increased significantly, mainly due to a very large transaction involving a prime office building in the CBD.
In contrast to the core strategies preferred by local investors, foreign buyers are utilising value-added plays involving higher risk and reward. Examples of this approach include a U.S. investor’s purchase of KB Bank Myeongdong building, which was subsequently redeveloped into a multi-purpose property comprising of hotel and retail facilities.
Office and logistics yields are forecast to remain stable this year as macroeconomic uncertainties including U.S.-China trade conflict create pressure for a base rate reduction. This will drive the prolonged inflow of foreign capital into Korean real estate.
KOREAN BUYERS SEEK OPPORTUNITIES IN EUROPE
Greater competition and regulation in the domestic market prompted more Korean investors to consider overseas markets in 2018. Outbound investment volume totalled US$ 7.4 billion, an increase of 14% y-o-y. Similar to 2017, office deals accounted for 90% of total outbound investment volume, reflecting investors’ strong preference for stable assets.
Active purchasers include well-capitalised local securities companies, which are acquiring overseas real estate to diversify their portfolios and hedge against the volatile local stock market. While some entities are establishing foreign real estate investment funds to purchase overseas property, most groups are utilising equity from local institutional investors.
More than 80% of Korean outbound real estate investment in 2018 was directed into assets in Europe. Investment in the UK more than doubled as purchasing activity was facilitated by relatively low interest rates and hedging costs. Assets in Japan were also keenly sought after, but investment in the U.S. fell by around 50% due to higher hedging risk.