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New report from Jones Lang LaSalle shows unprecedented growth in South Korean cross-border real estate investment in Q1 2013
LONDON, 25 June 2013 – A new report released today by Jones Lang LaSalle's International Capital Group highlights an unprecedented surge of South Korean investment into international commercial real estate in the first quarter of the year. According to the report, Spotlight on South Korean Offshore Investment, South Korean investors have purchased over USD5 billion worth of commercial property outside of Korea since the beginning of 2013, marking an exponential 900% increase from the USD500 million transacted in the first half of 2012.
The report shows that the growth in offshore investment, which Jones Lang LaSalle predicts could reach as much as USD10 billion by the end of the year, has not been restricted to one particular market, with transactions spread across all the major property markets worldwide, from shopping centres in Australia to an office tower in Chicago’s central business district.
Matt Richards, Head of International Capital Group, Europe, Jones Lang LaSalle commented:
"The steady flow of South Korean institutional capital into European real estate that started in 2009 has increased dramatically. This trend will continue as long as they can access yields of six to seven percent from purchasing core assets in prime locations.”
Alistair Meadows, Head of International Capital Group, Asia Pacific, Jones Lang LaSalle commented:
"We have seen strong growth in Korean purchasing activity across Asia Pacific, particularly in the major cities of China and Australia where Korean funds have committed to office and retail transactions of USD500million and USD1 billion respectively. We predict a continued interest from South Korean investors in the core assets of the region’s major city markets.”
Cross-border investment from South Korea has remained relatively consistent over the past five years, and this surge in 2013 is due to large capital inflows into funds and a small domestic market, both of which have encouraged South Korean investors to seek opportunities outside their home market. Recent uncertainties in the country’s economic and political landscape have also added to the attraction of cross-border investment, as tensions with North Korea and the significant change in Japanese monetary policy contribute to ‘capital flight’.
David Green-Morgan, Director, Global Capital Markets Research at Jones Lang LaSalle, said, “We have seen unprecedented activity on the global stage in the first half of 2013 as increasing numbers of institutional investors look to international markets seeking higher yields. While such a sharp increase in this timeframe is unusual, we don’t foresee a slowdown in this trend as local market conditions will continue to make international acquisitions an attractive option for South Korean investors. The big question over the next five years will be which markets they target.”
As South Korean activity in Q1 2013 surpassed that of traditional cross-border investors such as Canada, Singapore and Norway, it highlights a shift in the nature of international investment with an increasing preference towards joint ventures. This is particularly common in South Korea where, typically, institutions will group together to form larger amounts of capital that are then managed by one asset manager.
As a result, South Korean groups that invest outside their home market look for specific criteria from any potential acquisition in order to ensure it fulfils their distribution commitments. Typical requirements such as a net cash yield of between 6-7 per cent with minimal capital expenditure and a holding period of around five years will influence the destination markets for South Korean investment throughout the remainder of 2013 and beyond.
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