South Korean investment in UK commercial property in H1 2018 double that seen in whole of 2017
South Korean investment in the UK totalled GBP1.1 billion in the first half of 2018, which is already more than double the GBP530 million invested in the whole of 2017, and is set to continue to increase significantly for the remainder of the year, according to research from Cushman & Wakefield.
Four UK deals were completed in the first half of this year, all securing office assets in Central London. The largest was the GBP340 million paid by Mirae Asset Global Investments for 20 Old Bailey in the City of London, but all transactions exceeded the GBP200 million mark.
Last year, the largest of seven South Korean investment deals was for Sainsbury’s Hams Hall in Birmingham, which was bought for GBP104 million by Kiwoom Securities and KB Securities. This compares with a single deal completed in 2016 for GBP127 million, and no activity at all in 2015.
The trend for increased South Korean investment is a result of regulatory changes which have encouraged outward investment. The introduction of the new Capital Markets Act in 2015 kick-started the process and opened up the market to more potential capital.
The H1 2018 total for South Korean capital compares with GBP1.73 billion and GBP1.2 billion from Hong Kong and China respectively, and is ahead of the GBP842 million from Singaporean investors. South Korean investor appetite looks set to continue in the second half of 2018 as KAIM OBO Hana Financial Group has already purchased Gallagher Retail Park outside Walsall for GBP172 million in July.
Jonghan Kim, who specialises in advising firms from South Korea for Cushman & Wakefield’s EMEA Capital Markets team, says: “The Koreans have only started to buy again in London in 2018 as there had been concerns on the impact on the UK market following the vote to leave the EU. This was coupled with the fact that Continental Europe was performing well and had exceptionally low costs of finance. Hedging premiums have also played a factor. As a result, the focus was on major continental centres such as Paris, Brussels and the German cities.”
“However, the UK has come back on the agenda in 2018 in a big way as yields start to show relative value compared to other mainland European locations. I would not be surprised if total investment from Korea surpassed GBP4 billion for 2018, which is remarkable when compared to 2017 levels.”
South Korean funds have also invested in the leisure sector in the first half of 2018, investing mezzanine tranches in well-known hotel brands including JW Marriott and London Hilton on Park Lane. This trend looks to be continuing as a number of investors are still looking for the mezzanine tranches of capital in hotels across Europe and the UK.
Argie Taylor, Head of APAC Cross Border Capital Markets at Cushman & Wakefield, adds: “In the past, a lot of Korean investment at the equity end of the capital stack has gone to the US and Australian markets but today there is little or no arbitrage gain with financing, further strengthening the weight of equity coming to Europe. Korean return hurdles are achievable across Europe, whether inside the Eurozone or not and therefore we expect to see Korean capital continuing to be a major investor group in both UK and European markets.”
“South Korea has a population of just over 51 million today and is close to entering the top ten countries in terms of GDP. With its world leading education system, the workforce continues to drive the institutional investor demand and the retail markets. We expect the weight of outbound investment to remain strong; where they invest this capital will very much depend on the returns achievable at both the equity and debt end of the stack.”