MODERATION IN ASIAN OUTBOUND COMMERCIAL REAL ESTATE INVESTMENTS IN 2019

Investors in Korea and Japan turn more active as investors from Mainland China cool activity

March 4, 2020 (Seoul, Korea) – In 2019, Asian outbound commercial real estate investment fell 17% y-o-y to US $45 billion, according to the latest Asia Pacific Viewpoint report by CBRE Research. The perpetuation of capital controls in Mainland China was the primary reason for the moderation in investment activity, however, the appetite for overseas real estate acquisitions by other countries in the region remained robust.

Investment momentum in 2019 was largely propelled by Korean investors, whose full-year investment volume grew by 66% to US $12.5 billion. Nearly 70% of the total Korean capital was invested in European markets. Tom Moffat, Executive Managing Director, Head of Capital Markets Asia, CBRE noted: “As Chinese investors decelerate their outbound investment activity, we’ve seen Korean investors counteract this and continue to dominate the offshore investment landscape, expressing a strong interest in office, hotel and logistics sector assets. Low financing costs and the hedging premium between the Won and Euro continue to motivate investors from Korea.”

Japanese investors, who focused on U.S. markets in particular last year, also stepped up their purchasing activity by 40% y-o-y to US $3.0 billion.

Portfolio diversification stimulated investors from Korea, Hong Kong and Singapore to inject significant capital into Europe, of which US $4.9 billion in deals was recorded in Paris alone. Investors from Asia also led a pronounced shift toward other European cities, including Dublin, Milan, Prague, Warsaw. Dr. Henry Chin, Head of Research, APAC/EMEA, CBRE said: “Investors from Hong Kong and Singapore are expected to continue paying close attention to European markets throughout 2020. The easing of geopolitical uncertainties post-Brexit are also expected to reignite investors’ interest in London in 2020.”

Outside of Europe, commercial real estate investors in Asia Pacific showed a strong interest in Beijing, Shanghai and Sydney. While the U.S experienced a downturn in investment volume from Asia Pacific, investors from Korea showed investment appetite for hotel assets in the country, demonstrated by Aju Group’s acquisition of two Hyatt-branded hotels in midtown Manhattan and Lotte’s acquisition of the hotel portion of a downtown Seattle skyscraper. Chin added: “Whilst concerns about the recent coronavirus outbreak will dim investment activity in the short-term, we expect investors to monitor developments closely, postponing rather than exiting investments.”

Mainland Chinese investors’ capital outlay slowed for a second consecutive year, but some investors from this market have shown a proclivity for alternative assets, such as senior housing, a notable transaction being Cindat Capital’s acquisition of a UK-based portfolio in H2 2019, adding to its 2017 acquisition of a senior housing portfolio in U.S.. Asset disposals by investors from Mainland China continued in 2019; however the rate of disposal was lower than the amount recorded in 2018.

“In 2020, we expect commercial real estate investors in Asia Pacific to continue seeking higher returns and portfolio diversification opportunities outside of their domestic markets. As the upward market cycle reaches maturity, it is projected that investors in the region will turn to assets with stable income streams,“ Chin said.

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