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Published 1 junio 2020
The UK real estate investment market has slowed in recent weeks due to COVID-19, but our conversations with contacts in Asia, particularly in Korea, are encouraging and show that the UK is still seen as a top destination for overseas capital.
In line with the impact on macro real estate market activity within the UK, COVID-19 has placed a temporary halt on the majority of Korean overseas investment activity. Mainstream Korean investors are waiting for the market to stabilise and are taking a conservative approach to overseas investment.
Due to the restrictions on travelling it is still impossible to carry out the usual site visits, which are a vital part of investors’ due diligence process before a deal can be agreed.
Debt is a fundamental part of most Korean investment transactions. The debt market is still volatile and term sheets offered by lenders tend to remain valid only for a few weeks and generally not long enough for a transaction to complete.
Notwithstanding this, some Korean investors are still reviewing potential new overseas investments and the majority expect to consider new deals by the latter part of this year. The key to unlocking this investment will be the relaxation of lockdown restrictions on travel and the stabilising of the debt market.
Prior to COVID-19, the main demand was for core and core plus assets in prime locations, let to strong covenants. In recent years Koreans have invested in offices, hotels, student accommodation, data centres, and logistics.
Post COVID-19 we expect to see a shift in demand from Koreans’ towards logistics assets, data centres and infrastructure. These sectors have shown themselves to be sustainable and less affected than offices, retail and hotels during COVID-19.
Whilst market activity is low, deals are still progressing with Korean investors in the midst of COVID-19. If the tenant covenant and the asset meets the investor criteria and the deal provides an attractive cash on cash return, Koreans remain engaged provided a flexible timescale can be agreed for site visits and surveys in light of the travel restrictions.
For example, Midas Asset Management has acquired three logistics assets in Germany, including an Amazon facility, for 200 million euros, in an investment which the market expects to generate an internal rate of return of around 7%. It is understood that NH Investment & Securities Co. Ltd and Hana Finance Investment Co. Ltd underwrote 83.5 million euros to sell down to domestic investors. The remaining 120 million euros were borrowed from local banks in Europe. This deal may have been delayed for a few weeks due to COVID-19, but the Korean buyer and investors remained engaged.
Furthermore, the Korean National Pension Service has invested at least $1 billion dollars in aggregate in a Portuguese toll road operator and a property redevelopment project in Manhattan, ending a months-long lull in overseas alternative investments caused by COVID-19.
However, Mirae asset Global Investment Co. Ltd has recently pulled out of one of the largest cross border property deals by a Korean company. It was in the process of a $5.8 billion acquisition of 15 US luxury hotels. Mirae has put a brake on its previous 6 year acquisition of global hotel chains which seems to indicate changes to come in its overseas strategy that have been accelerated by COVID-19. The travel and leisure industry is expected to take a while to recover from the COVID-19 shock and it is understood that Korean investors were supportive of Mirae’s decision to withdraw.
Looking to the future, a recent Collier’s International EMEA survey stated that 74% of overseas investors wish to invest in London and the UK in the next 6 months. Those investors are all likely to be interested in the same types of assets, so asset prices for logistics, data centres and infrastructure may rise in the face of increasing demand, but a fixed level of supply. Korean investors tend to be very fixed on achieving a specified level of return from a transaction. So rising prices might result in a temporary retreat by the Koreans from the UK market.
However, the chief economist for CBRE has recently stated that Asia, which was initially hit hardest by the pandemic, is likely to recover faster than Europe or America. So as the UK starts to relax lockdown and travel becomes routine again, we hope to see Korean and Asian investors looking for UK real estate opportunities again.
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