RCA: South Korean cross-border investment to top $20 billion globally in 2019

South Korean real estate investors have hit a record total of $11.5 billion in global cross-border deals to-date in 2019 and with more large deals in the pipeline, this could reach more than $20 billion by year-end, double the previous peak of $9.6 billion in 2017, Real Capital Analytics’ latest Insights research shows.

The vast majority of this capital has been invested in Europe, notably in Paris offices, with the current currency hedging premium between the South Korean won and the euro, and the cheap cost of debt, strongly underpinning these flows.

Tom Leahy, RCA’s Senior Director of EMEA Analytics, explains:

“South Korean players have been stalwart global real estate investors for several years, but have really stepped into the spotlight and eclipsed their Asian peers in 2019, after a sharp fall in spending by Chinese and Hong Kong-based investors outside the region. Increasing domestic institutional allocations to the real estate asset class were a powerful factor in driving deal volumes and prices to record highs in Seoul, causing investors and managers to look further afield to generate a sustainable return on their capital.”

South Korean flows into the U.S. market slowed towards the end of 2017, partly due to a divergence in interest rates in the two markets, as Korean investors are obliged hedge their currency risk. The U.K. then became the largest beneficiary of these investments attracting more than $2.5 billion in 2018, before the focus switched to eurozone markets this year.

Paris offices were the major beneficiary of the South Korean move away from London in 2019. More than $4.0 billion (€3.7 billion) has been spent in six separate transactions, of which the largest deal was the acquisition of the Lumiere building in the French capital by a joint venture of Hanwha, Samsung SRA and Primonial.

The Lumiere deal represents a blueprint for how a lot of the South Korean capital has been deployed: a big international market, an office building, a large lot size with a long let, and in a joint venture with a local asset manager.

There has, however, been a gradual move away from elements of this model and some South Korean investors have proved more adventurous in their choice of market and sector.

james.wallace@realassetmedia.com