South Korean investment in 2019 eclipses previous record - RCA

The vast majority of this capital has  been invested in Europe, notably in Paris offices, with the current currency hedging premium between the South Korean won and the euro, and the cheap cost of debt, strongly underpinning these flows.
 
Tom Leahy, RCA’s senior director of EMEA Analytics, said: 'South Korean players have been stalwart global real estate investors for several years, but have really stepped into the spotlight and eclipsed their Asian peers in 2019, after a sharp fall in spending by Chinese and Hong Kong-based investors outside the region. Increasing domestic institutional allocations to the real estate asset class were a powerful factor in driving deal volumes and prices to record highs in Seoul, causing investors and managers to look further afield to generate a sustainable return on their capital.'
 
South Korean flows into the US market slowed towards the end of 2017, partly due to a divergence in interest rates in the two markets, as Korean investors are obliged hedge their currency risk. The U.K. then became the largest beneficiary of these investments attracting more than $2.5 bn in 2018, before the focus switched to eurozone markets this year.
 
Paris offices were the major beneficiary of the South Korean move away from London in 2019. More than $4.0 bn (€3.7 bn) has been spent in six separate transactions, of which the largest deal was the acquisition of the Lumiere building in the French capital by a joint venture of Hanwha, Samsung SRA and Primonial.
 
The Lumiere deal represents a blueprint for how a lot of the South Korean capital has been deployed: a big international market, an office building, a large lot size with a long let, and in a joint venture with a local asset manager. There has, however, been a gradual move away from elements of this model and some South Korean investors have proved more adventurous in their choice of market and sector.
 
RCA data for the first nine months of the year, show South Korean investors have spent more in the logistics sector and in secondary markets in Europe than ever before. For example, Central and Eastern Europe has attracted $1.2 bn in spending while Luxembourg, Ireland and Belgium have also been targets. In total, South Korean investors have invested around $10 bn (€9.1 bn) on European real estate in the year to-date, dwarfing the $6.5 bn in investments in 2018.

Tom Leahy added: 'Brussels, a market not often on the radar of global investors, has proved more compelling to South Korean player due its relative stability and an occupier base oriented towards the public sector.' 

The latest such deal in the Belgian capital, which is still in contract, is the acquisition for $1.4 bn of the Finance Tower, a 2.4 million sq ft (220,000 m2)  office let to the Belgian government until 2031.  The buyer is a join venture between a UK investment manager and two South Korean firms, AIP AM and Meritz Securities. If and when this deal completes, it will be by far the largest ever single property trade in Belgium.

South Korean investments in global real estate have risen steadily since 2011
The South Koreans’ shift into global markets first started in 2011-12 after rising allocations towards real estate by institutional investors had driven prices and volumes in their local market to record highs. The move overseas was led by pension fund NPS which initially purchased assets in the US and UK – the traditional first ports of call for Asian capital going global. However, flows really picked up in 2015, when South Korean investors spent more than $3 bn in the US and over $2 bn in Europe, primarily in Germany and Austria.
 
This first wave was led by public money and then by the larger institutional investors, primarily the insurance funds run by the likes of Samsung, Hyundai and Hanwha. The investor base has since broadened markedly, reflecting the depth of capital in South Korea, the scale of demand and the drive to diversify. Real Capital Analytics has recorded 22 South Korea-based investors who have spent more than $1.0 bn in the global real estate markets in the last five years.

Tom Leahy, concluded: 'South Korean cross-border real estate investments in Europe and globally are already at an all-time peak, but this doesn’t mean that the main focus of these flows won’t switch again. Mirae Asset’s victory in the bidding war for Chinese insurer Anbang’s luxury U.S. hotel portfolio, and other deals in the pipeline, might signal the U.S. market is back in play as viewed from Seoul.'