Korean and Singaporean Investment Leading Asian Outbound Capital Flows

- Diverse capital deployments in the region reflect various motivations and strategies

Korea, September 9 – Asian outbound commercial real estate investment declined 25% y-o-y to US $19 billion in the first half of 2019, weighed down by the rebalancing of portfolios by Chinese investors and global economic uncertainties. Despite a moderation in global capital market flows, international commercial real investment continued to attract diverse sources of capital with Korean and Singapore reaffirming their status as Asia’s leading source of capital.

Data from CBRE’s biannual analysis argues that Asian outbound flows momentum is being spurred by new sources of capital looking for diversification, a low interest-rate environment, historically low yields and new destinations gaining popularity.

Henry Chin, Head of Research, APAC/EMEA, noted that Asian capital is not homogenous: “While there are overarching factors like geopolitical uncertainties and low interest rates which will affect the region as a whole, investors from each market possess a different set of motivations and have different options in capital deployment. For example, low domestic yields and positive hedging environment were identified as key motivators for Korean investors’ purchasing activity, while Singaporean investors are largely motivated by yield and are more willing to move out on the risk curve and explore alternative property investment options.”

Korean investors contributed the largest portion of outbound flows in the first half of 2019. Led by large pension funds, SWFs and, more recently, asset management and securities companies, Korean investors doubled their purchasing activity from two years ago to US $6.8 billion. While major gateway cities in Europe, particularly Paris, Amsterdam and select cities across Germany, remain popular amongst Korean investors, CBRE smaller European markets in Ireland, Poland and Czech Republic are increasingly attracting Korean capital.

Singaporean capital constituted the second largest source of Asian outbound capital in H1 2019, reaching US $5.7 billion in purchasing activity. Acquisition strategies focused primarily on office and logistics properties and Singaporean buyers demonstrated a growing interest in emerging European cities. Singaporean investors have, compared to Korean investors, engaged in a broader range of investment activities. In an effort to diversify globally, a common trend emerging amongst Singaporean investors is the pursuit of higher yields and alternative investments, including student accommodation and data centers. Singaporean buyers also remain keenly focused on opportunities within Asia, as they accounted for 43% of total Asian flows into the region.

Since H2 2018, mainland Chinese investors have shifted from net buyers to net sellers. In H1 2019, mainland Chinese investors have disposed of assets in key overseas markets including London, New York and Vancouver – albeit at significant profit. This, along with existing capital controls, is likely to perpetuate the trend of net disposing by mainland Chinese investors. Purchasing is expected to be led by sovereign wealth funds (SWFs) and by corporates acquiring assets for self-use.

Sean Choi, Head of Capital Markets, Korea, said: “Whilst the purchasing momentum by mainland Chinese investors has faded, different Asian investors will continue to seek portfolio diversification and new markets, as well as new routes into real estate will, to an extent, fill this gap.”

CBRE believes Asian investors can still capture alpha returns through a defensive, blended portfolio which combines both direct and indirect investments in core properties. Chin added: “Participation in funds will be worthwhile for investor who are interested in increasing their exposure to commercial real estate but perhaps lack the operational expertise.”