Executive Summary – Inbound
Foreign investment in the Korean commercial real estate market reached an estimated US$1.9 billion in 2020, down 24% y-o-y from 2019. The decline in cross-border investment was primarily due to the impact of travel restrictions and other measures to contain the spread of COVID-19. Intense competition from domestic buyers, which continue to be supported by abundant liquidity, also inhibited acquisitions by overseas investors.
Many foreign investors nevertheless continue to pursue investment opportunities in Seoul, with 2020 witnessing the completion of several major office and logistics deals. Asian capital accounted for 59% of total foreign commercial real estate investment last year, followed by the U.S. (25%) and Europe (16%).
Among Asian buyers, Singaporean-based investors were particularly active, completing several major acquisitions of office properties in Seoul and logistics assets in Greater Seoul. Weaker sources of capital included Hong Kong, which saw a significant fall in purchasing activity in 2020 following an active 2019.
Although the pandemic is now in its second year, the rapid rollout of vaccination programmes and improved medical treatment are expected to underpin a recovery in inbound investment. Respondents to CBRE’s 2021 Investor Intentions Survey named Seoul as the region’s third most attractive cross-border investment destination after Tokyo and Singapore, indicating robust demand among foreign investors for Korean real estate.
Executive Summary – Outbound
Travel restrictions and an inability to perform onsite due diligence weighed on Korean outbound real estate investment for much of 2020, with full-year transaction volume falling 39% y-o-y to US$6.3 billion, ending three consecutive years of growth.
Despite these obstacles, Korean investors retained a strong appetite for overseas acquisitions in 2020, with deal flow picking up gradually in the second half of the year. Investment in the U.S. rose substantially from 2019 as the Korean won’s lower hedging costs against the U.S. dollar lured investors to this market. Yield compression in Europe also prompted many Korean buyers to reorient portfolios towards the U.S.
Strong global logistics demand encouraged Korean investors to target this asset class in 2020, with investment more than doubling from US$1.2 billion in 2019 to US$2.4 billion last year. The U.S. attracted 77% of all Korean outbound investment into the logistics sector, while several major deals were also completed in Europe.
As the pandemic continues, CBRE expects Korean outbound investment in 2021 to target core assets such as offices and logistics facilities. Demand for niche sectors such as data centres and residential properties is also expected to grow among investors looking to diversify their portfolios.