RCA Insights

South Korean Investors Eclipse Peers in Record Year

By on October 3rd, 2019

Even before a Seoul-based buyer emerged as the successful bidder for Anbang Insurance’s luxury U.S. hotel portfolio, South Korean players had spent more on commercial real estate outside Asia in 2019 than investors from Singapore, China and Hong Kong combined.

The $11.5 billion tally for completed cross-border deals so far in 2019 already sweeps away their previous annual record of $9.6 billion in 2017. If Mirae Asset’s multibillion-dollar hotel deal and other transactions in contract close before the end of the year, 2019 would more than double South Korean buyers’ previous annual record for acquisitions outside their domestic market.

South Korean investors have come into the spotlight as spending by Chinese and Hong Kong players has sunk since 2017. However, South Korean players have been stalwart global investors for several years.

The shift into global markets first started in 2011-12 and was led by the NPS. The national pension fund purchased assets in the U.S. and U.K. – 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 billion in the U.S. and over $2 billion 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 for commercial property and the drive to diversify. Real Capital Analytics has recorded 22 South Korea-based investors who have spent more than $1 billion in the global real estate markets in the last five years.

South Korean players have increased their allocations towards real estate, which has driven prices and volumes in Seoul to record highs. This trend, in turn, has prompted investors and managers to diversify and look further afield for opportunities to generate a sustainable return on their capital.

Some of the decision-making around where to invest has been driven by the legal requirement to hedge currency risk. Therefore, in response to a divergence in interest rate policy, flows into the U.S. slowed at the end of 2017 and shifted towards Europe instead. In 2018, more than $2.5 billion was spent in the sterling-denominated U.K., while the current hedging premium between the South Korean won and euro and cheap cost of debt means 2019 has seen a big emphasis on euro-denominated markets.

Paris offices are the major beneficiary of a move away from London in 2019. More than $4 billion has been spent in six separate transactions, of which the largest deal was the acquisition of the Lumiere building by a joint venture of Hanwha, Samsung SRA and Primonial. This 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 been a gradual move away from elements of this model, though. Some South Korean investors have proved more adventurous in their choice of market and sector, and a greater amount of capital is being spent in the logistics sector and in secondary markets than ever before. For example, $1.2 billion has been spent in Central and Eastern Europe; Luxembourg, Ireland and Belgium have also attracted capital.

Brussels, a market not often on the radar of global investors, has proved more compelling to South Korean players due the relative stability of its investment cycle and an occupier base oriented towards the public sector. The latest such deal, which is still in contract, is the $1.4 billion acquisition of the Finance Tower, a 2.4 million square foot office let to the Belgian government until 2031.  The buyer is a joint venture between a U.K. 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.

Judging by the volume of deals in contract alone, the drive for South Korean players to invest globally remains in place, but whether Europe remains the number one market is open to question. Mirae’s victory in the bidding war for the Anbang hotel portfolio might signal the U.S. is back in play.

Real Capital Analytics is the authority on global trends in capital flows. To learn more about RCA’s data, tools and reports, contact us.

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Tom Leahy

Tom Leahy

Senior Director, EMEA Analytics

Tom Leahy joined RCA in 2014. In his role as Senior Director for the EMEA region, Tom is responsible for the development and expansion of the market analytics service for RCA’s European clients.

Prior to joining RCA, Tom was an Associate Director and then Head of Research at UK-based property consultancy, Lambert Smith Hampton. He started his career as an analyst at research consultancy Property Market Analysis (PMA).