South Korean institutions, including pension funds and insurance companies, poured a record 12.5 billion euros ($14 billion) into Europe’s real estate assets last year, scooping up office buildings and logistics facilities which offer 2-3% points more yields than domestic properties.
Their 2019 investment in Europe’s property market more than doubled from the previous year’s 5.4 billion euros, with France accounting for one-third with 4.5 billion euros ($5 billion), according to Savills.
Despite the surge in Korean capital inflows into Europe’s real estate market, the UK saw a nearly 30% drop to 1.6 billion euros from Korean property investors, versus 2.2 billion euros in 2018.
Looking ahead, historically-low financing costs in Europe are likely to continue to lure Korean funds into Europe’s property market, although the slightly tightened hedging premium between the euro and the Korean won may dampen the appetite of Korean investors who face calls to balance Europe-heavy portfolios.
“It may not be as strong as last year, but demand for overseas property investment will remain intact this year,” said Savills senior manager Jae Yoon. “Diversification into the US and elsewhere will occur as well.”
Rental yields from office buildings in Europe’s core cities are similar to those in Seoul.
But cash-on-cash returns in Europe are 2-3% points higher than South Korean assets because of cheap debt and currency hedging premium.
By asset type, office buildings attracted the vast bulk of Europe-bound Korean money with $10 billion in 2019, followed by logistics facilities for $3.5 billion.
Their acquisitions include Tour Majunga by Mirae Asset Daewoo Co. Ltd.; Tour CBX by Hana Financial Investment Co. Ltd.; Lumiere by Samsung Securities Co. Ltd. and Hanwha Investment Securities Co. Ltd.; and Tour Europe by Korea Investment & Securities Co. Ltd.
By country, Germany attracted 1.9 billion euros, including Hana Financial Investment Co. Ltd.’s 1 billion-euro purchase of Germany’s largest office complex in Frankfurt.
The Netherlands, the Czech Republic and Austria drew 700 million euros from Korean property investors, respectively, followed by 600 million euros into Spain.
By Hyun-il Lee
<Edited by Yeonhee Kim>
(Photo: Getty Images Bank)