CBRE Korea: ‘Korean buyers pursue overseas acquisitions despite pandemic-related disruptions’

- Recent report covers patterns in Korean outbound investment and future purchasing trends
- Continued focus on core assets, portfolio diversification, and diversification of investment structures

September 28, 2020 (Seoul, Korea) – CBRE Korea, a global commercial real estate services company, announced that although the COVID-19 pandemic has led to a sharp decline in Korean outbound investment in H1 2020, Korean investors retain a long-term strategic focus on global real estate investment, with many buyers continuing to pursue opportunities abroad, according to CBRE Korea’s COVID-19 and Outbound Investment Viewpoint report.

Many Korean investors already possess considerable experience in investing in overseas real estate, with pension funds, securities companies and insurance firms among the most active institutional buyers seeking opportunities in recent years. The Korean National Pension Service (NPS) has been at the forefront of the trend of deploying capital into global real estate. Outbound real estate investment by NPS is projected to increase in the coming years in line with its target of investing 50% of its total capital in foreign assets (including real estate, stocks and bonds) by 2024.

Other Korean pension funds including the Korea Teacher’s Credit Union (KTCU) and Public Officials Benefit Association (POBA) have also been increasing their holdings in overseas real estate as part of a strategy of raising their proportion of alternative investments to enhance profitability. Low interest rates and abundant liquidity have supported overseas investment by Korean insurance and securities firms.

According to CBRE Research’s data, since 2017, Europe has been the preferred destination for Korean capital, accounting for 67% of total outbound real estate investment. Favored investment destinations within the region have evolved in recent years, with the UK attracting the bulk of Korean capital in 2018, but France emerging as the most popular market in Europe in 2019. This was due to factors such as rising asset prices, high currency hedging costs and sell-down risk in the UK. In terms of preferred investment asset type, offices accounted for 75% of total Korean outbound investment volume in 2019. Logistics investment volume surged over the course of the year, accounting for 12% of the total, compared to just 1% in 2018.

The spread of COVID-19 has adversely impacted Korean outbound investment. According to CBRE Research data, Korean outbound real estate investment volume for H1 2020 totaled USD 2.5 billion, a decline of more than 50% compared to the same period last year. However, CBRE expects Korean outbound investors to recalibrate their strategies as they seek to adjust to the new normal. Domestic institutional investor demand for overseas real estate investment is expected to remain robust because of intense competition in the Korean commercial real estate market and regulatory uncertainty.

One of the key trends for overseas real estate investment is that Korean investors prefer stable core assets, which is expected to accelerate amid the disruption and volatility wrought by the pandemic. CBRE also expects investors to conduct a more thorough analysis of tenants when considering a potential purchase as part of a far more intensive approach to risk management. Additionally, investors are diversifying their portfolios. Uncertainty around future office demand growth and the impact of remote working is likely to prompt some investors to adopt a more cautious stance towards this sector. This may prompt some buyers to pivot to logistics properties, data centers and multifamily properties.

Claire Choi, Research Director at CBRE Korea, said, “Korean buyers are not only purchasing stable office assets, but also purchasing overseas opportunities in the logistics sector. Data centers and multifamily properties are likely to be the subject of stronger interest from Korean outbound investors, which are relatively resilient to economic volatility. On the other hand, weaker private consumption and a near total shutdown of global tourism have led to elevated risk associated with hotel and retail property investments.”

In terms of investment destinations, as competition among domestic institutional investors intensifies in Europe, investment in non-core regions as well as major core markets is expected to broaden as buyers aim to discover new investment destinations offering higher returns. Potential investments in major developed European markets such as France, Germany and the UK, along with key regions in Spain and Northern and Eastern Europe, are now being evaluated by Korean investors. In addition, Korean investors are conducting investment reviews in the U.S. and searching for investment opportunities in Asia. Asia Pacific accounted for 19% of Korean outbound investment in 2019, compared to just 5% two years ago.

Don Lim, Managing Director of CBRE Korea, stated, “In the long run, the search by Korean investors for investment opportunities in Asia is expected to broaden as buyers seek relatively more attractive opportunities closer to home owing to intense competition and high asset values in Europe and the U.S.”

Individual investors are also interested in investing in overseas real estate, and they can more readily access opportunities via investing into public funds. In addition, overseas property-backed REITs offer reasonable growth potential in the long-term, with further K-REITs of this type expected to be listed on the stock market once an economic recovery is underway.

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