Europe benefits, as wave of Korean global investment doubles
Investment in global real estate from South Korean investors could exceed €18.2bn over the full year 2019, double its previous peak of about €7.2bn, with Europe remaining the primary beneficiary, according to new data from Real Capital Analytics.
South Korean investment outside its home country has been on a steady rise since 2011, and a number of factors have tipped things in Europe’s favour, such as the current hedging premium between the South Korean won and the EU’s euro, cheap cost of debt, low interest rates and strong underpinning. Their strengthened presence is welcome news in European markets which have seen a sharp fall-off in spending by Chinese and Hong Kong-based investors outside their regional areas.
So far in Europe, the big winner of South Korean largesse has been Parisian offices, with six transactions in 2019 made for around €3.7bn. South Korean investors are moving capital from London to the French capital and other Eurozone markets such as Belgium, Ireland and Luxembourg.
The largest South Korean-invested deal made this year in Paris was the Lumiere building, which was acquired by Hanwha, Samsung SRA and Primonial REIM. The €1.3bn deal embodied much that South Korean investors tend to target: an office building in a large international market, a large lot size with a long let, and a joint venture acquisition with a local asset manager.
Additionally, Korean investors seem to focus on assets in prime locations, where the deal has a simple and strong covenant with preferably a long-term single tenant with blue-chip credentials, although the asset itself could be either a traditional or an alternative property type. Such deals seem to be the most in demand for passing Korean investment committees’ scrutiny
Another big player, the $10bn Public Officials Benefit Association (POBA) has made its plans known to invest more heavily in European real estate. It has recently been holding talks with big European players such as Allianz, Patrizia, PGIM Real Estate, AXA Investment Managers and JP Morgan Asset Management about it future European investment strategy.
POBA has already announced plans for a joint venture with PFA, Denmark’s largest pension fund and the seventh largest in the world, to do joint investments in European real estate. The Danish fund itself announced recently a major expansion of its international presence at the expense of further domestic investments, with the future primary focus being on real estate investments in the rest of Europe, APAC and the USA.
Interestingly, South Korean funds are also now currently the most active foreign investors in CEE property markets, according to a new joint report by real estate advisors Skanska and Collier International, prepared with law firm Dentons.
According to the report, during the first half of 2019, South Korean companies alone invested over €1bn in the region, surpassing German investments.
“Europeans, led by the Germans, used to be the biggest and core group of investors looking for A-class prime assets in our region. With new players, especially from South Korea, becoming more active in the CEE markets, this situation is changing,” said Karczewicz.
The primary reasons for investors to flock to Central and Eastern Europe are a favourable economic situation and a good performance of CEE’s main cities, primarily in the office market. The office stock has been growing in recent years and now totals 21.8m sq m throughout the entire region, according to the three firms. Forecasted completions by 2021 will increase by another 20%, to 26.5m sqm.
Separately, South Korean investor Samsung Securities & KB Securities has secured a €119.3m loan from Germany’s DekaBank to acquire a logistics property in the German city of Mönchengladbach, on a deal advised on by La Française Group. The newly-built property has 150,000 sqm across three floors and is fully let to ecommerce giant Amazon. It includes office space and canteen facilities, with 1,000 parking spaces and 180 trailer spaces.
According to Amar Latif, who heads DekaBank’s German origination platform, ‘With the successful cooperation with La Française, DekaBank was once again able to illustrate its expertise to underwrite large tickets if secured against core real estate in Germany.’
Jens Goettler, managing director for Germany at La Française, said: ‘For La Française, this is a landmark transaction on behalf of South Korean investors, keen on diversifying their portfolios into e-commerce-led investment themes. As e-commerce penetration deepens, the German logistics real estate market continues to show positive signs both in terms of valuations and rental values and we will continue to seek quality assets for our clients.’