For South Korean Investors, Two Conflicting Impulses — Expand, Or Hedge Bets?
South Korean investors poured more than £3B into the Central London office market in 2018, but that level of investment may prove difficult to replicate.
“South Korean investors have become a key investment group in European real estate markets,” said Emma Steele, associate director of cross-border investment at Savills. “But it is hard to tell whether they’ll become even bigger players. If they do, it probably will not be in London.”
Of the 32 European projects backed by South Korean capital in 2018, 10 were in central London, according to RCA. Savills was involved in more than half of those deals, including 200 Aldersgate, 1 Poultry and Cannon Green. Steele said that the year represented a marked shift in focus for these investors, who, in the two years previous, had focused away from the UK and on mainland Europe.
However, the level of investment seen in London last year is unlikely to become the new normal. While Steele said some Korean investors are hoping to grow and diversify UK portfolios, others await further Brexit clarity.
“In addition, the sell-down process [of syndicating equity in assets purchased to smaller investors] still has to be completed, and the secondary market needs time to digest the purchases before we see another cycle of investment in central London,” Steele said.
“South Korean investors are typically conservative and research-driven, and in the UK, Central London is the market that they know the best, hence that being the location where we’ve seen the highest investment,” Steele added. “However, they are now branching out in terms of cities and sectors, but all the while maintaining a risk-off strategy.”
Across sectors, South Korean investors are looking for high-quality assets that offer long-term income to tenants who are well-known and considered to have strong covenants.
In terms of locations, they have expanded beyond London to markets like Manchester, Birmingham, Edinburgh and Bristol. They are also looking to "tier two" cities in Europe like Prague, Vienna and Stuttgart. These cities have also become hotbeds for Korean investors, as they search for cash-on-cash returns, and look to diversify their investment portfolios.
Ultimately, South Korean investors are risk averse, Steele said. They are generally looking for cash-on-cash return of approximately 6% net of tax and fees, and will on the whole follow the market to wherever those returns are possible. Regardless of how much capital South Korean investors hold, Steele expects they will be slightly more cautious in the UK in 2019, whilst being most active in tier one and tier two markets in mainland Europe.
This feature was produced in collaboration between Bisnow Branded Content and Savills UK. Bisnow news staff was not involved in the production of this content.
