EXPO 2019: South Korean investment across Europe surges to more than €11 billion YTD

South Korean capital flows into European commercial property have surged to more than €11 billion so far this year, according to data by Cushman & Wakefield, driven by cheap financing, resilient fundamentals and de-regulation which has enabled institutions to diversify long term investments overseas.

This key 2019 trend is featured in the new issue of Real Asset Insight available from today at EXPO 2019. A full itinerary of our investment briefings at EXPO can be found here.  

Yasemin Engin, Assistant Economist, at Capital Economics argues that the current wave of South Korean capital is sustainable. Engin explains:

“Credit is set to stay cheap for some time as we are now forecasting the ECB to further cut its deposit rate by 30bps next year to -0.8% and increase its asset purchases from July 2020. While there is a risk that looser policy from the Fed could pull capital flows away from Europe, we are only expecting one more 25bps interest rate cut from the Fed in December, which would still leave European debt much cheaper than in the US.

“Meanwhile, the momentum from Korean institutional investors is unlikely to run out of steam any time soon. Indeed, South Korea’s National Pension Service, the third-largest pension fund in the world, is set to change its asset allocation to equal parts domestic and foreign assets as part of its five-year plan, adjusting its foreign asset weighting from 30% to 50%. Moreover, Korea Investment Corporation, Korea’s sovereign wealth fund, is planning on further increasing its exposure to foreign real estate.

“In the last four years, while there has been some interest in other sectors, investors have focused on offices. Looking ahead, given Korean investors’ preference for stable income returns, we expect investment to remain predominantly in the office sector.”

Of the €11 billion of cumulative South Korean capital invested in European real estate over the three quarters of 2019, around €6 billion was invested across offices in Western Europe, including more than €4.5 billion in Paris alone during H1. A further €1.5 billion was invested in Central and Eastern Europe (CEE) and Southern Europe, all according to Cushman data. 

Jonghan Kim, head of Korea desk, EMEA Capital Markets, at Cushman & Wakefield, explains:

“The first wave of investment from South Korea into London made a statement, but pales in comparison to the activity in Paris in the first six months of the year. Whilst the appetite for European real estate demonstrated by South Korean investors shows little sign of abating, we can expect activity to cool a little in Paris over the next six months. Capital is likely to be directed towards other locations in Europe as investors seek to diversify and balance their portfolios.”

james.wallace@realassetmedia.com

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