Korean investors push deeper into Europe with more value-add bets

South Korean investors deployed €1.18bn in Europe in the first five months of the year, even amid a drop in the overall Asian outbound investment volume, according to Savills.

Halfway through 2018, South Korean capital is taking up a bigger piece of the shrunken pie of Asian investments in European real estate markets.

Korean investors invested €1.18 billion in total in European real estate markets from January through May 2018, according to a report published by the real estate services provider Savills.

Korean investors comprised 25 percent of the total Asian outbound investment into Europe over the first five months of the year, a sizable increase from the 13 percent share in H1 2017. With this, Korean investors have moved up the pecking order to become Asia’s second largest outbound investor group in Europe.

The heightened investment activity by Korean investors comes amid a drop in outbound estate investment from Asia as a whole. Overall, the first five months of 2018 showed a 44 percent drop in Asian investment in European real estate, compared to the first six months of 2017.

According to Savills, this overall decline is either due to lack of investment opportunities, or that the record volumes seen in 2017 represented an unusual peak in investments. Indeed, in the first five months of 2018, total Asian investments in Europe was trailing the five-year average by only 11 percent.

Chinese investors for instance deployed €324 million in the first five months of 2018, versus €2.4 billion invested in the first six months of 2017, on the back of the Chinese government’s continuing imposition of capital controls. Meanwhile, the Singapore-based investors that continue to take up the number one spot invested €1.3 billion during the same period. However, the share of Singaporean investors in the overall Asian outbound investment pie also dropped by 51 percent.

Marcus Lemli, head of Savills European investment, told PERE that a wide array of Korean investors are now active in the European markets. Most recently, Seoul-based Samsung SRA Asset Management launched a debt fund targeting the UK office market earlier this month.

“Korea is seeing an increasing amount of capital being allocated as discretionary capital or ‘blind funds’ for overseas investment. On the supply side, domestically the investable real estate universe is simply [too] small,” Lemli said.

To date, Korean investors have mainly been involved in single-asset deals in Europe. Savills’ data shows that Korean investors invest predominantly in office assets in core European markets such as UK, Germany, France, and Belgium. There, they generally look for core or value-add assets in strong locations, Lemli said.

For example, Seoul-based asset manager Mirae Asset Global Investments bought 20 Old Bailey, an office building in central London, from the New York-headquartered investment firm Blackstone for £340 million ($433 million; €380 million) in June, according to the real estate services firm Cushman & Wakefield.

“Domestically these [Korean] deals still tend to be focused on core and core plus, whereas when going overseas this is where you see some of the more established players moving up the risk spectrum into value-add territory,” Lemli said.

Connect with more than 100 Korean institutional investors this November at the PERE Investor Forum: Seoul. Find out more on the event website.