South Korea Commercial Property Investment Imploded in 2020, Driven by COVID
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According to CBRE’s 2020 Korea In and Out Report, foreign investment in the Korean commercial property market was estimated at $ 1.9 billion in 2020, a 24% year-over-year decrease, while outbound commercial property investment in Korea declined 39% in 2020 to $ 6.3 billion in 2020.
The decline in cross-border investment was mainly due to the COVID-19 pandemic. Intense competition from domestic buyers, who continued to be supported by ample liquidity, also prevented acquisitions by foreign investors. However, many overseas investors continued to pursue investment opportunities in Seoul until several key office and logistics deals were closed in 2020.
Asian capital represented 59% of total foreign commercial real estate investment in 2020, followed by the US (25%) and Europe (16%). Singapore-based investors were particularly active, completing several major acquisitions of office properties in Seoul and logistics facilities in the greater Seoul area. On the flip side, Hong Kong investors who bought logistics properties in 2019 saw a sharp drop in 2020.
Outbound commercial real estate investments in Korea also inevitably declined due to the pandemic. However, Korean investors continued to have a keen appetite for overseas acquisitions in 2020, and deal flow gradually picked up in the second half of the year. Investments in the US rose significantly from 2019 as the lower cost of hedging the Korean won against the USD attracted investors to the market. The compression of returns in Europe also prompted many Korean buyers to focus their portfolios on the US
Strong global logistics demand encouraged Korean investors to target the asset in 2020. Investments more than doubled from $ 1.2 billion in 2019 to $ 2.4 billion last year. The US attracted 77% of all Korean foreign investment in the logistics sector, while several key deals were also closed in Europe, including Eastern Europe.
Claire Choi, Research Director at CBRE Korea, stated, “The rapid roll-out of vaccination programs and improved medical care are expected to lead to a rebound in inbound investment and foreign investor demand for Korean commercial real estate will remain robust. and logistics facilities, and demand for niche sectors such as data centers and residential real estate is also expected to increase with investors looking to diversify their portfolios. “