South Korea is one of the best office and logistics markets for yield in 2018- 2019. In the office market; owners are expanding flex space for the 4.0 industrial revolution. Korea was expecting net absorption to rise to 230,000 sq. m. in 2018, a figure 1.7 times higher than the previous year. The demand is being fueled by the technology sector and expansion of the co-working sector and increased pre-leasing demand. In Seoul the vacancy rate is forecast to increase by 1.4% from a year ago due to new supply, and rents are expected to remain at similar levels to last year.
Seoul has thriving logistic market with modern state of the art supply hitting the market. GIC the Singapore SWF stated that it will buying Blocks A and B of Hwaseong Dongtan Logistics Complex in Gyeonggi Province in South Korea for US$570 million (S$780.7 million) through a real estate fund.The Singapore sovereign wealth fund said Blocks A and B are two newly completed, prime-grade distribution centres. They are part of the Hwaseong Dongtan Logistics Complex, which is located 35 km from Seoul and with good access to the Seoul-Busan Expressway, the No. 1 artery expressway in South Korea. Both blocks.There will be a movement away from existing logistics assets to modern facilities. Growing involvement of institutional investors and an increase in new supply over the past three years has also led to intensifying competition among landlords to secure tenants. Building new logistics space will be concentrated in Yongin and Icheon region of Gyeonggi province, where demand for logistics space is continuously growing. Approximately 1.75 million sq. m. of new Grade A logistics space was scheduled to be completed within Gyeonggi region in 2018. The new supply of Class A industrial space have attracted private equity and institutional investors to Seoul market and the outlook for the market is stable with slow growth for 2019,meaning on par with 2018. In a competitive environment, it is important for property owners to differentiate their assets, incorporating user wellness elements and all sorts of amenities to their logistics and office property asset.Pacific investors are attracted to the stability and growth of the Korean office market in 2019-2021. The Korean office markets has staring off 2019 with Singapore investors. Keppel Capital’s Korean unit has been named the preferred buyer for a trio of Seoul office buildings valued at a combined KRW 450 billion ($400 million), according to a report in The Korea Economic Daily. The outbound capital flow from Korean SWFs are altering their strategic thinking around global diversification and emerging markets.
On the issue of outflow of capital,KIC Korea Post the sovereign wealth fund is targeting $200bn AUM by 2020. South Korea’s sovereign wealth fund is reportedly attempting to nearly double its assets under management by 2020, its chief executive officer said at its anniversary ceremony this week at PEI. Korea Post are not considering lowering targeted returns of their global real estate and infrastructure portfolios despite intense competition and falling expected returns, as they are seeking further diversification into sectors expected to benefit from new business and consumer trends, or set for a cyclical recovery. KIC is making a thematic approach to target assets, in consideration of new market trends such as e-commerce growth and mobile market expansion which will lead to higher demand for logistics centers and broadband networks.Chung Hyun Lee Head of Real Estate, at Korea Post is taking a close look at sectors such as vessels, set to make a cyclical recovery, after it shifted toward mezzanine facilities in real estate and infrastructure over the past year, away from equity investment. Lee Says, he realize that he must become globally diversified to create value and yield, but is concern about mitigating risk through” joint ventures” as considers shift away from mature markets(OECD) and into transitional economies. Mr Lee states:“We have invested primarily in developed countries, particularly OECD countries.
“As for emerging markets, they have more risk factors we have to consider than developed markets.We are studying how to take and handle such risks.We have to cooperate with local GP’s(general partners) and partners.We have to invested heavily in core and core plus assets in developed countries (in the past 12 months).”“Selectively, on a case-by-case basis, we may take advantage of the Brexit for some assets which entail risks, though.”“Emerging markets can be an alternative to development markets, returns from which have declined sharply. But we have to make every preparation for currency and policy risks”. He stated that he would consider investing in shipping vessels which makes Indonesia an idea market with a 1800 island archipelago. For global investors all the cycles and trends are recognizable and so are the risk, when considering global diversification, joint ventures, infrastructure and alternative assets. The questions is what stage of the commercial real estate cycle in the Asia Pacific region are we at in?