Foreign investment in the Korean commercial real estate (CRE) market reached an estimated USD 1.9 billion in 2020, down 24% y-o-y, while Korean outbound commercial real estate investment volume fell 39% y-o-y to USD 6.3 billion in 2020, according to CBRE’s 2020 Korea In and Out report.
The decline in cross-border investment was primarily due to the COVID-19 pandemic. Intense competition from domestic buyers, who continued to be supported by abundant liquidity, also inhibited acquisitions by overseas investors. However, many foreign investors continued to pursue investment opportunities in Seoul with 2020 witnessing the completion of several major office and logistics deals.
Asian capital accounted for 59% of total foreign commercial real estate investment in 2020, followed by the U.S. (25%) and Europe (16%). Singaporean-based investors were particularly active, completing several major acquisitions of office properties in Seoul and logistics assets in Greater Seoul. On the other hand, Hong Kong-based investors, who were active in purchasing logistics assets in 2019, showed a significant fall in 2020.
Korean outbound commercial real estate investment also inevitably decreased due to the pandemic. However, Korean investors retained strong appetites for overseas acquisitions in 2020, with deal flow picking up gradually in the second half of the year. Investment in the U.S. rose substantially from 2019 as the Korean won’s lower hedging costs against the USD lured investors to the market. Yield compression in Europe also prompted many Korean buyers to reorient portfolios towards the U.S.
Strong global logistics demand encouraged Korean investors to target the asset in 2020, with investment more than doubling from USD 1.2 billion in 2019 to USD 2.4 billion last year. The U.S. attracted 77% of the all Korean outbound investment into the logistics sector, while several major deals were also completed in Europe including Eastern Europe.
Claire Choi, Head of Research at CBRE Korea, explained, “The rapid rollout of vaccination programs and improved medical treatment are expected to underpin a recovery in inbound investment and demand among foreign investors for Korean commercial real estate will remain robust. Korean outbound investment in 2021 will target core assets such as office and logistics facilities and demand for niche sectors such as data centers and residential properties is also expected to grow among investors looking to diversify their portfolios.”