Economic uncertainty spurs real estate investment

Despite growing global fears over economic uncertainty, cross-border direct real estate investments in major cities around the world are expected to increase this year, drawing a comparison with shaky stock and bond markets, according to experts.

Explaining the attractive nature of direct real estate investment, Alistair Meadows, Asia-Pacific head of International Capital Group within global real estate service firm Jones Lang LaSalle, and David Green-Morgan, director of Global Capital Markets Research, said cross-border property transactions are bound to increase as investors want a steady income stream coming regardless of market volatility. 

“Ironically the more volatile China has become and the more oil prices have dropped, we see more money coming into direct real estate,” Green-Morgan said in a recent interview with The Korea Herald.

“Chinese outbound money has doubled in the last two years and (money from) the Middle East increased 100 percent between 2014 and 2015. The big macro trend is that we see more people wanting to put more money into direct real estate,” he said

Though Middle Eastern and Chinese groups remain to be the biggest movers of capital, Korean outbound investment also grew at a fast pace last year.

“Korean outbound capital grew faster in percentage terms than Chinese outbound capital in 2015. Korean outbound capital grew by (almost) 70 percent year-on-year versus Chinese outbound capital of 46 percent,” said Meadows, who leads JLL’s ICC, a group of market professionals who facilitate cross-border transactions around the world.

The majority of Korean money has gone into the U.S., Europe -- particularly Germany -- and Australia, he said.

“Korean investors are seeking good, risk-adjusted returns, and those three markets -- the U.S. Germany and Australia -- give stable income return to satisfy Korean investment objectives.”

JLL brokered Mirae Asset’s acquisition of three office buildings in the U.S. and Australia between 2013 and 2015. In 2013, JLL closed Mirae’s purchase of 225 West Wacke building at $218 million and 1801 K Street building in Washington at $445 million last year.

Offices continue to make up over 50 percent of Korean investment activity, Meadows said.

“However, we have seen a rise in interest by Korean investors in 2015 into the industrial and logistic sectors, especially in the U.S.,” he added.

Seoul is an attractive investment destination for foreign investors, but the challenge is that the city faces fierce competition from other Asian cities.

“I think there will be selective interest in the Seoul office market. We see these global cities competing with other cities. So when international investors are looking into Seoul, they will be comparing Seoul against Tokyo, and Sydney as investment destination within Asia-Pacific,” said Meadows.

“There is still demand, appetite from U.S., European investors. Probably one challenge is just the access to stocks, which is often controlled by Korean domestic institutions,” he added.

South Korea was the 14th biggest market in the world in terms of commercial property transactions. Seoul was ranked 20th in terms of transaction activities with $6.6 billion, according to JLL’s recent data.

The U.S. took half of all transaction activities, with New York topping the list of transactional volume with $48.3 billion last year. London took second place with $39.4 billion. “This is an indication of how liquid New York and London are,” said Green-Morgan.

By Cho Chung-un (christory@heraldcorp.com)