Korean investment in European office market jumps 152%

South Korean investments in the European office market increased 152 percent as of November on-year, buoyed by a currency-swap premium, but is projected to decline and diversify next year, commercial real estate services company Cushman & Wakefield said Wednesday.

“Around 18 trillion won ($16.5 billion) was invested in the overseas office building market so far this year and European properties accounted for 86 percent of the total volume,” Philip Jin, head of research at the Korean office of the US-based firm, said in a press briefing.

“The investments were focused on office buildings in key districts and business hubs in Western Europe including France and Germany due to factors such as currency-swap premium of around 120 to 130 basis points and stability of the investments,” he added. 

Korean investors’ interest in the European office market has been growing in recent years with its slice in the overseas investment pie having more than doubled this year compared with 2015, a C&W data showed. The corresponding figure for 2015 stood at 38 percent, with the US office market outperforming Europe with 44 percent.

But the demand for the US market has seen a hefty decline since, weighed down by currency-swap risks, accounting for merely 7 percent of the total this year.

Coupled with currency-swap risks, the US market has largely fallen out of favor of Korean investors due to soaring prices.

However, C&W added that it doesn’t expect the European market to gain further momentum in 2020, with the currency-swap premium slowly diminishing.

“Next year, we expect to see interest in the US office market to recover,” Jin said.

Along with the US market bouncing back, C&W also noted the expansion of investments in areas of Europe, including the eastern region. There were six office building deals made in Eastern Europe this year, compared with two cases last year.

This includes local asset manager JP Asset Management’s joint acquisition of the Nordic Light Trio office building in Budapest with NH Asset Management for nearly 54 billion won earlier this year.

Despite the growing attention, however, Jin stressed that he doesn’t believe the Eastern Europe office market will outgrow Western Europe.

Regarding next year’s Seoul’s office leasing market, C&W projected stable demand, but a surge in vacancy rate during the second half of 2020.

“Seoul’s office building market next year will see the largest level of supply since 2010 with at least 1 million square meters of new office space,” Jin said referring to data compiled by C&W.

“But due to high demand focused in the first half of the year, the Seoul office market will see an average vacancy rate in the range of 8.8 percent to 10 percent in the fourth quarter of next year.” 

By Jung Min-kyung (mkjung@heraldcorp.com)