Three criteria identify the purchase of the Lumière in Paris as exemplary for South Korean investments: a large international market, a larger office property with long-term leases and a joint venture with a local asset manager.
David Cousin-Marsy / Tishman&Speyer, RCA

Won beats euro

South Korean investors are required by law to hedge currency risks. Industry experts see this as one of the reasons for the massive increase in East Asian Won capital-based investor interest in the European real estate markets. By Steve Hays

South Korean investors poured a record €12.2 billion into European real estate last year, more than the value of capital coming from Singapore, Hong Kong, China and the rest of Asia combined. Greater institutional allocations to the real estate asset class and high prices in the domestic market, have led these buyers to seek opportunities in cities across the EU.


They are being increasingly adventurous in their choice of destinations and property sectors, research from global data provider Real Capital Analytics (RCA) shows. “The extremely large cross-border tally of deals made 2019 by far the biggest year for South Korean capital in Europe, more than doubling the €5.6 billion spent in 2018,” according to Tom Leahy, RCA’s Senior Director of EMEA Analytics. Some of the recent decision-making around where to invest has been driven by South Korean legal requirements for investors to hedge currency risk. As interest rates have diverged between the major international real estate investment markets, capital flows into the U.S. slowed in 2017 and shifted towards Europe instead. 


The extremely long list of investments by South Koreans in Europe during 2019 breaks all records.
Tom Leahy , Senior Director EMEA Analytics, RCA
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South Korean capital shifts from UK to Europe

The main initial beneficiary of this was the sterling-denominated UK market in 2018, but South Korean capital has since moved more towards Continental Europe, attracted by the relative hedging premium between the won and the euro and the cheap cost of debt.


Paris office markets were the main magnet for the move away from London in 2019 and more than €4 billion was spent in seven transactions, of which the largest deal was the acquisition of the Lumiere building by a joint venture of Hanwa, Samsung SRA and Primonial.  The Lumiere deal represents a blueprint for how a lot of the South Korean capital has been deployed, encompassing a big international market; an office building; a large lot size with a long let and a joint venture with a local asset manager.


Investors diversify more

There has, however, been a gradual move away from elements of this template transaction model. Some South Korean investors have proved more adventurous in their choice of markets and sectors, and a greater amount of capital is being spent in logistics assets and in secondary markets than ever before.


For example, €3.5 billion was invested outside the big four markets of the U.K., France, Germany and the Netherlands in 2019. Of this, €1.3 billion was directed towards a mix of Central European office and logistics assets, including Vestas IM’s €70 million acquisition of a distribution unit let to Leroy Merlin in central Poland. Spain has also appeared on the radar screen of South Korean investors for the first time in a major way, with three logistics transactions completed in the last four months of the year, of which the largest was the forward purchase of warehouse on a 20-year lease to Amazon for €177 million at a 4.45% yield.


Brussels is a market not often in the sights of international investors but has attracted South Korean players due to the relative stability of the city’s investment cycle underpinned by its large public sector and E.U. institutional occupier base.


At the start of 2020, the Finance Tower, a 200,000 square-metre office let to the Belgian government until 2031, was acquired by a joint venture between a U.K. investment manager and three South Korean firms, AIP AM, JR AMC and Meritz Securities for €1.2 billion. This deal was by far the largest- ever single-asset real estate transaction in Belgium. The National Pension Service of Korea was the first to venture into international markets back in 2009. The NPS picked up three London office properties, in one of the traditional first port-of-call markets for Asian capital going global, for a combined £1 billion ($1.3 billion), and sold two of them for £1.3 billion within five years. European flows really picked up in 2016, however, when South Korean investors spent more than €3.5 billion, primarily in Germany and Austria.


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East Asian capital discovers new markets

The first wave of international investments was led by public money and subsequently by the larger institutional investors, primarily insurance funds run by the likes of Samsung, Hyundai and Hanwha. The investor base has since broadened markedly, reflecting the depth of capital in South Korea, the scale of demand for commercial property and the drive to diversify investment portfolios. RCA has recorded 23 South Korea-based investors who have spent more than €500 million in European real estate markets in the last five years.


“Exactly a decade after the NPS took its first steps offshore, European real estate is attracting a flood of South Korean capital with big-ticket purchases in ‘new’ territories from Luxembourg to Slovakia,” RCA’s Tom Leahy said. The impact of South Korean money on real estate investment markets is not just being felt in Europe, it is a global phenomenon, with these investors taking the top spot among Asian capital exporters worldwide in 2019. Their combined $17 billion deals outside of Asia-Pacific, of which Europe accounted for about 70 percent last year, was almost double the previous high in 2017, RCA’s data show. South Korea also bucked the general trend in 2019, when overall global cross-border real estate investment activity slowed and investors moved their focus closer to home.  The other major Asian capital exporters all scaled back their transactions, with Chinese flows outside of Asia collapsing to their lowest levels in a decade, exemplified by a 91 percent fall in investment to the U.S.. “South Korean outbound capital made up almost half of all Asian outflows in 2019. The only other year when the Koreans emerged at the top was during the throes of the Global Financial Crisis, when the major Asian capital exporters all slashed their investments outside the continent,” RCA analyst Benjamin Chow concluded.


By Steve Hays


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