ASIA – Allocations to global real estate by South Korean institutional investors are set to increase over the next two years, according to new research.

ANREV, in association with Mercer and Real Capital Analytics, gathered information from 14 Korean investors, representing investment portfolios worth $500bn (€383bn).

Alan Dalgleish, director of research and professional standards at ANREV, said: "In the coming couple of years, we could see at least as much offshore investment by South Korean investors as has been seen in the last five years."

The survey finds that Korean institutions have taken a fairly cautious approach to investing in global real estate so far, with investments in two or three locations, and usually via only one type of vehicle.

That might be a joint venture, club deal, closed-end fund or direct investment.

In future, allocation methods and geographic preferences are set to change.  

"No respondent will allocate by one means alone," says the report.

"One discernible trend is that allocations to joint ventures will be reduced in favour of club deals and closed-end funds.

"Geographic exposure is also set to become more diverse, supporting the observation that Korean LPs' experience and confidence in the global real estate arena are growing quickly."

The research highlights several factors important for investors in offshore real estate, including identifying investment partners to ensure alignment of interest, and transparent markets that have good professional standards and corporate governance.

But concerns about lack of knowledge of offshore markets, as well as currency-exchange risk, figure among their main worries in investing overseas.

Some survey respondents also felt fee levels were high compared with their home market and feared they lacked the necessary resources for due diligence.

A lack of investment opportunities in the domestic market is one driver of this increasing overseas interest.

Mercer principal Jennifer Johnstone Kaiser said: "Korean investors strongly feel there are capacity constraints or a lack of attractive opportunities in their domestic market but at the same time that there is a good range of product available overseas.

"This, coupled with high yields and the transparency of countries like Australia, UK and the US, make those markets attractive to Korean investors."