NEWS
Goldman Sachs will invest around $2 billion in the real estate market in South Korea, mostly in the logistics and data centers amid accelerated digital transition and booming e-commerce industry. According to sources from the investment banking industry on Monday, Goldman Sachs Asset Management has launched a team of specialists in property investment with a two-year budget of around 2 trillion won ($1.7 billion). The world’s leading investment manager is said to have already acquired 650,000-square-meters of distribution center properties, including a logistics complex project under development in Icheon, south of Seoul. Goldman Sachs is expected to zero in on warehouses and data centers in Korea as they are in hot demand due to the explosive growth of the digital and e-commerce sectors driven by the pandemic. The American investment bank has been mostly absent in the property market in Korea over the past decade except for some sporadic building project investments in Seoul since 2016. Market sources expect Goldman Sachs would also include retail, office and renewable energy related properties in its investment portfolio for the next two years. It has organized a due diligence team at the local market to aggressively hunt for profitable opportunities and speed up large-scale investments, said an official from the IB industry. The real estate investment project will be carried out via Goldman Sachs Asset Management’s real investment fund, and all the final decisions related to the project will be made overseas. Goldman Sachs Seoul branch has begun working to support the overseas fund management after reporting the new business to the Financial Supervisory Service last week. The Seoul branch will be involved in reviewing contracts and selecting external partners.
South Korea’s monthly exports recorded a historic high of $55.4 billion in July thanks to the strong demand for the country’s all 15 mainstay products such as chips, machinery, and petrochemicals amid the ongoing global economic recovery from the Covid-19 pandemic. But trade surplus more than halved from June to $1.76 billion due to rising raw materials prices, spurring concerns over Korean Inc.’s deteriorating profitability. According to data released by the Ministry of Trade, Industry and Energy on Sunday, Korea’s outbound shipments surged 29.6 percent on year to $55.4 billion in July, the highest monthly figure since the ministry began compiling related data in 1956. Previous all-time high figures were $55.1 billion in September 2017 and $54.86 billion in October 2018. Brisk exports in the seasonally slow month of July due to summer holiday has led Korea’s monthly outbound shipments gain for the nineth month in a row from November last year and grow more than 20 percent for four straight months for the first time in 10 years. Korea also topped $50 billion in exports for a fifth month in July from March, leading to record January-July exports of $358.7 billion, up 26.6 percent from the same period a year ago. It is also the biggest jump in 11 years. If the current trend continues, Korea`s exports for whole 2021 may be able to reach $600 billion. The government forecast that the country’s exports will remain robust in the second half of this year, citing the rosy outlook for the global trade recovery and a rise in unit prices of the country’s mainstay products such as chip, display, steel and petrochemical products. Exports of all 15 items gained in July for a second straight month, of which 13 reported double-digit growth. Outbound shipments of mainstay semiconductors surged 39.6 percent on year to $11 billion, the highest for the month of July. Shipments of petrochemicals and general machinery at jumped 59.5 percent and 18.4 percent and those of vehicles 12.3 percent and computers 26.4 percent. New growth items also saw a jump in exports – bio health 27.2 percent, secondary battery 31.3 percent, and cosmetics 11.7 percent. Shipments to nine major regions increased for a fourth month in a row, of which those to the United States, European Union, and ASEAN were the highest for July and China second highest. Exports to China jumped 15.7 percent to $13.57 billion in July and to the U.S. 32.1 percent to $8.72 billion. Trade balance, meanwhile, which equals the value of exports minus imports, reached a surplus of $1.76 billion in July versus $4.45 billion in June. The decline was due to higher raw materials prices such as international oil prices, raising concerns that Korean exporters` profitability may deteriorate. Trade Minister Moon Sung-wook said that risk elements still remain such as rising raw materials prices, component supply setback, difficulty in exports and imports logistics, and surging variant virus cases. He said the ministry will provide all support to export companies so that Korea is able to reach record annual exports this year and recover $1 trillion trade.
South Korea’s venture capital investment hit an all-time high of more than 3 trillion won ($2.6 billion) in the first six months of this year amid state-backed revitalized investment ventures mostly in IT and bio sector. According to data from the Ministry of SMEs and Startups released on Wednesday, venture capital investment value reached 3.07 trillion won in the first half ended June, expanding a whopping 85.6 percent from the same period of last year. Startups in the ICT, logistics, bio and medical sectors attracted most funds. The logistics sector showed the biggest rise amid e-commerce boom, jumping 383 billion won from the previous year. The bio and medical sector also drew 375.5 billion won, taking up the largest share of the total investment. A total of 61 companies attracted more than 10 billion won each in investment in the first half. Four companies landing more than 30 billion won in investment were online shopping platform operator Ably, AI chip startup Furiosa AI, and Viva Republica, the operator of Korea’s popular money transfer app Toss. Four companies were identified as unicorn, or an unlisted startup with a valuation of more than US$1 billion. Follow-up investment in the first half doubled on year to reach 2.22 trillion won thanks to eased regulations. This also suggests that a sustainable venture investment cycle has been created in the country. A total of 137 venture funds attracted 2.74 trillion won in the January-June period, surging more than 130 percent on year. The figure marked a new record high in both number and volume. Private investors poured 1.97 trillion won into venture funds, 156 percent higher than a year ago, while public sector injected 766.3 billion won, up 83.8 percent on year.
Logistics centers have emerged as a hot investment for property investors amid burgeoning online shopping demand in South Korea. According to investment banking sources on Wednesday, Foodist under VIG Partners will invite tenders for sale and leaseback of its logistics center in Icheon, Gyeonggi Province by the end of June. The logistics center sale is expected to fetch up to 200 billion won ($179.4 million), given the line of buyers. The estimated sale price could double what VIG Partners had paid to Hanwha to buy Foodist last year. Cold storage warehouses are in hot demand, with general commercial building investment in the downturn due to emptied buildings from slow business amid Covid-19 crisis. The surge in the value of logistics warehouses is largely due to the explosive demand for online shopping amid the virus outbreak since last year, analysts said. Hana Alternative Asset Management recently acquired a logistics facility in Osaka, Japan for around 150 billion won by forming a real estate fund with an estimated return of about 7-10 percent. Mastern Investment Management also invested 250 billion won to take over six logistics centers in France and signed long-term lease contracts with French parcel delivery service provider Mondial Relay and U.S.-based Amazon and Fedex. It is planning to share the rent with its real estate fund investors. Mirae Asset Securities successfully pooled in 30 billion won from institutional investors including KunYoung Engineering & Construction, AI Partners and MJ Partners for its distribution center project in Busan. Foodist opened its Icheon logistics center in late 2019 after two years of construction at a cost of 50 billion won. The facility is located 8 km away from the Icheon interchange, easily accessible not only to Seoul and near metropolitan areas but also to the entire country. It is equipped with a cold chain warehouse system for the entire process from warehousing and storage to delivery, grabbing attention from potential buyers.
Real estate investors searching for deals in South Korea were seen shifting their attention away from the capital city of Seoul in the first quarter of 2021 as demand for logistics assets rose, data showed Thursday. Commercial property deals that closed in Seoul during the first quarter with tickets of over $10 million added up to $2.2 billion, down 25.8 percent on-year, while investment in other parts of Korea rose 3 percent to $2.6 billion, according to data from New York-based capital market company Real Capital Analytics. Seoul’s share of all first-quarter nationwide investment came to 45.1 percent, down from 53.3 percent a year prior. This trend is attributable to changing investor preferences during the pandemic era, according to RCA. For example, midsize to large deals during the first quarter, including Singapore-listed Mapletree Logistics Trust’s $250 million acquisition of five logistics centers in the southeastern part of the Greater Seoul area, bumped up the figures for transactions outside Seoul. Foreign investors’ appetite for properties outside Seoul -- including those in burgeoning logistics cluster cities such as Icheon and Yongin -- is growing consistently. Seoul’s share of inbound investment stood at 44 percent in the first quarter, a sharp contrast with 79 percent seen during the 12-month trailing period. “In fact, most of the cross-border investment outside of Seoul, around 75 percent over the 2015-2021 period, has been going towards industrial properties,” said Benjamin Chow, head of analytics, Asia-Pacific, at RCA. “Given the favorable supply-demand dynamics for logistics properties in South Korea, we do expect interest from overseas investors to be maintained into this year. Whether they are able to successfully outbid domestic investors is another issue altogether.” Despite the downtrend, Seoul was the second-most-active metropolitan city in the Asia-Pacific region in terms of commercial real estate transactions, trailing Tokyo. “Cross border investors still concentrate their purchases of office and retail properties primarily within Seoul,” Chow said, adding that the purchase of Starfield Hanam by Blackstone last year was a noteworthy exception. Meanwhile, Korea as a whole was ranked the third-largest destination for commercial real estate investment among the Asia-Pacific countries, according to RCA. Its first-quarter transactions fell 13 percent on-year, but the figure during the 12-month trailing period until March, $25.6 billion, was 6 percent higher on-year. Korea was estimated to be the 10th-largest source of cross-border commercial real estate investment, deploying $572 million over the past 12 months, down 44 percent on-year.
IT solutions providers are enjoying a heyday as Korean logistics players rush in robotic and digital upscaling to stay competitive after e-commerce leader Coupang Inc. vowed to use most of $4.2 billion IPO proceeds to reinforce its fulfillment capacity. Posco ICT, the IT and engineering unit of South Korea’s steel giant Posco, is one of the firms providing logistics automation equipment. Its censors and cutting-edge controlling system have been installed in a cargo terminal at Incheon International Airport that handled around 170,000 freights per day on average before the Covid-19 pandemic. An average of 11.4 units of cargo per 100,000 are misdelivered at global airports, but the error rate sharply falls down to 0.2 at Incheon International Airport thanks to Posco ICT’s outstanding technology, an official from the company said. The company won an order from Hanjin Transportation to supply its artificial intelligence (AI)-based unmanned package sorting system for Hanjin’s 107 billion won ($94.6 million) worth mega hub project. Hanjin is building a mega-sized logistics terminal in Daejun on an area of 148,230 square meters with an aim to complete the construction by 2023. The new center will be capable of handling 1.2 million parcels a day. LG CNS, the IT service arm of LG Group, is the leader of the country’s logistics automation market by accounting for 30 percent. It has worked with local delivery majors such as CJ Logistics, Hanjin Transportation and Lotte Global Logistics as well as e-commerce platforms to establish their distribution centers or provide IT solutions. LG CNS’ AI solution automatically categorizes packages into three by size and its accuracy rate reaches 99.8 percent. Its AI picking robots are able to learn various shapes and sizes of parcels to move them without damage. Lotte Group’s IT and logistics units, Lotte Data Communication and Lotte Global Logistics, are also collaborating to establish a mega hub logistics center in Jincheon, North Chungcheong Province by 2022. The center will be capable of predicting cargo volume based on big data analysis to effectively deploy delivery trucks and manpower in advance, the company said. The country’s logistics automation market is estimated to grow to 760 billion won this year.
Logistics center operations in Korea have remained strong amid the global pandemic on account of e-commerce and third-party logistics’ (3PL) leasing activities, according to a quarterly report issued by Jones Lang LaSalle Incorporate. Centers in the Seoul Capital Area have posted an overall vacancy rate of 7.9% during the second quarter, down 2.4% from the previous quarter. This can be attributed to the increased leasing demands from e-commerce and 3PL companies that are seeing a surge in operations from ‘untact’ consumption. Untact is a term coined by combining ‘un’ with ‘contact’, commonly used in Korea when referring to a non-contact or non-face to face operation such as online businesses. E-commerce businesses are flourishing as consumers prefer shopping online to avoid physical interaction with others. The early-morning delivery market has seen a boost, creating a greater need for e-commerce businesses to secure storage space for fresh products and seasonal items such as meat, vegetables, fruits, and ice cream. This could nudge logistics developers to provide more dry-cold complex logistics centers to fulfill the needs of e-commerce tenants who want to store both dry and cold products. Namsa Logistics Terminal, the largest pure cold logistics center in Korea boasting a 251,239.67 square meter area, successfully rented out all five floors except the second basement. The average net rent for Grade A logistics center during the second quarter was approximately 31,700 won per pyeong (Korean unit for floorspace, equivalent to 3.3 square meters), a 0.1% quarter-on-quarter increase. The modest increase in net rent is due to the fact that many new logistics centers have been constructed which helped to balance out the soaring leasing demands and keep the price within reasonable range. The logistics transaction volume posted approximately 184.7 billion won ($155 million) during the second quarter of this year, a significant drop from the previous quarter’s volume of 700 billion won due to global uncertainty. The transaction volume is expected to rise during the second half of the year given that the demand for logistic centers remain solid, according to JLL. Korea’s logistics assets remain attractive to investors. Earlier in April, a local alternative asset management firm Mastern Investment Management purchased the LG Electronics Logistics Center located in Changwon, Gyeongsangnam-do for 95.5 billion won. The firm also purchased GS Networks Logistics Center in Icheon, Gyeonggi-do to expands its logistics portfolio in Korea. YNP Asset Management, a real estate investment firm, acquired DPL Logistics Center in Yeoju, Gyeonggi-do for 50.9 billion won this quarter in addition to its purchase of Smart Logistics Center during the first quarter. Also, ongoing deals such as LB Asset Management’s sale of Icheon Dancheon-ri Logistics Center, and Hana Alternative Asset Management’s sale of Cheonan LG Hausys Logistics Center are likely to be completed during the second half of the year.
Global pension funds have turned their attention to South Korean logistics as e-commerce demand soars due to COVID-19. Dutch pension fund APG, Canada Pension Plan Investment Board (CPPIB) and Hong Kong’s logistics real estate platform ESR on Thursday agreed to invest a combined $2 billion in Korean distribution centers. Logistics have emerged as a stable investment over the years, delivering solid annual returns of 5 to 6 percent. They have gained even greater appeal given their strong growth momentum amid the pandemic. E-commerce is thriving in Korea and is set to get even bigger. The latest Euromonitor report showed that e-commerce accounted for 28.2 percent of all retail sales in Korea in 2019, with this figure expected to reach 38.2 percent in 2024. A similar growth trend can be found in China, home to the world’s largest e-commerce market. During the same period, e-commerce penetration in China is projected to rise from 28.2 percent to 40.4 percent, according to Euromonitor. COVID-19 has accelerated the migration to online stores. Korea’s biggest portal operator Naver reported a 7.4 percent jump in its first-quarter operating profit compared with a year earlier, largely due to a surge in online sales from social distancing measures to slow the spread of the virus. The country’s ecommerce giant Coupang is likely to see a similar boost. Its revenue soared 64.2 percent year-over-year in 2019 to 7.15 trillion won ($5.79 billion), with sales expected to be even higher this year following Korea’s massive outbreak in late February. But experts say the real winners behind the latest e-commerce boom are owners and investors of logistics centers. Many local e-commerce firms tend to rent out the warehouses, unable to shoulder the massive costs of direct ownership. Korea’s logistics center lease hit a record high of 30,270 won per 3.3 square meters last year, up 21.7 percent from a decade ago, according to global real estate service firm CBRE. Logistics and fulfillment facilities are now a hot investment target in not only Korea but across Asia. An ESR annual report highlighted this growing retail shift from brick-and-mortar to online. Institutional investment in Asian physical shopping malls plunged to $2 billion in 2018 from $8 billion in 2014. During the same period, institutional money raised for logistics centers in the region surged to $12 billion from $8.9 billion.
In another mega partnership, APG, Canada Pension Plan Investment Board and ESR Cayman Limited Investments, have entered into a new joint venture, called ESR-KS II. Its goal is to invest in South Korean industrial assets.
South Korea’s M&A deals related to distribution centers are on the rise as demand for e-commerce and online grocery delivery grows. The value of M&A deals related to real estate was around 8.19 trillion won in the first quarter, of which logistics centers-related transactions accounted for about 22 percent, totaling 1.83 trillion won, according to the bell plus compiled based on deals that have completed. In 2019, M&A deals relating to logistics centers accounted for around nine percent, or 1.77 trillion won, of the total real estate-related transaction value of 19.66 trillion won. Among five deals that have completed in the first quarter, four were domestic deals and one was an overseas deal. The largest deal in the first quarter was Kohlberg Kravis Roberts (KKR)’s sale of its BLK Pyeongtaek Logistics Center to Korean real estate asset manager Pebblestone Asset Management for 197.6 billion won. BLK Pyeongtaek Logistics Center is a newly developed multi-tenant modern logistics facility located in Pyeongtaek Port, one of the largest ports in South Korea. Deutsche Asset Management acquired a distribution center in Gimpo, Gyeonggi Province, for 63.9 billion won from KB Real Estate Trust based in Seoul. The deal saw the KB affiliate to realize a profit three years after it purchased the property. The only overseas deal in the first quarter was where Meritz Alternative Investment Management invested 1.5 trillion won in logistics centers located in Europe. Investment opportunities in domestic logistics centers are expected to rise in the near future. Colliers International’s Jang Hyun-joo expects new investment opportunities both in logistics centers near major cities and large suburban logistics centers further from the city center to grow due to increasing e-commerce demand while investment demand for refrigerated logistics facilities is on the rise. At the same time, tenants increasingly prefer mega-sized distribution centers, which push investments in logistics centers over 99 thousand square meters. Geographically, Yongin and Icheon, which traditionally have been main axis for logistics centers, are already saturated with excess supply. As a result, investment and supply in Anseong and Incheon are on the rise. Integration of small and medium-sized logistics facilities are also increasing. Logistics companies have recently focused on integrating outdated small and medium-sized facilities to improve operation efficiency. In terms of types of investors, blind-pool funds launched by domestic asset management firms have invested in logistics centers. Until recently, investments in logistics centers were led by foreign firms. Among firms, ADF Asset Management has been particularly active in betting on logistics centers over the past two years. ADF Asset Management is managing a real estate-related blind-pool fund as an external manager selected by the National Pension Service and Public Official Benefit Association (POBA). Market insiders expect investments in logistics centers through blind-pool funds to increase further.
Global investment firm Kohlberg Kravis Roberts (KKR) announced that Korean real estate asset manager Pebblestone Asset Management will acquire BLK Pyeongtaek Logistics Center from a KKR-led consortium. BLK Pyeongtaek Logistics Center is a newly developed multi-tenant modern logistics facility located in Pyeongtaek Port, one of the largest ports in South Korea. The facility, which was completed by the consortium in early 2019, has a gross floor area of approximately 140 thousand square meters, making BLK Pyeongtaek Logistics Center one of the largest modern logistics assets in Pyeongtaek City as well as in the southern Gyeonggi province. Its tenants include a major e-commerce retailer and various third-party logistics companies. KKR made its investment from its Asian Fund 2. John Pattar, Partner and Head of Asia Pacific Real Estate at KKR, said, “The rapid growth of e-commerce is transforming South Korea’s logistics sector, creating a growing demand for fully-integrated and technology-enabled warehousing facilities that can support greater volumes and faster delivery. We are proud of our work alongside our partners to complete the BLK Pyeongtaek Logistics Center, one of the country’s newest modern logistics facilities.” “BLK Pyeongtaek Logistics Center is a one-of-a kind facility strategically located in a fast-growing coastal city with easy access to major transportation routes. The center’s design features, including its cutting-edge cold and dry warehousing facilities, also make it a compelling option for companies across many industries. We look forward to supporting all of BLK Pyeongtaek Logistics’ existing and future tenants as they bring their unique products and goods to the Korean market. This is an excellent win-win transaction for both parties of KKR’s successful sale and stable income for the buyer,” said Terry Hwang, CEO and Managing Partner of Pebblestone Asset Management Korea. KKR takes a flexible approach to real estate investment in Asia Pacific across traditional value-add real estate opportunities, corporate and platform investments, and special situations. KKR pairs the capabilities of its local teams in Asia Pacific with the firm's industry and operational expertise to add value. KKR has committed more than 14 billion dollars of equity in its pan-regional real estate strategy, as of December 31, 2019. The firm recently started to raise 12.5 billion dollars for its KKR Asian Fund 4 and it reportedly formed a fund worth 200 million dollars with South Korea’s Shinhan Financial Group.
South Korea on Wednesday launched a mandatory entry log system using QR code-based registration at entertainment facilities, such as clubs and karaoke establishments, a move aimed at enabling health authorities to quickly trace anyone possibly exposed to the new coronavirus at such places. All visitors to such facilities must sign the entry log, using a QR code-based registration system. The facilities required to keep an entry log also include indoor training facilities, large-scale private academies, logistics centers and buffet restaurants. Some 80,000 facilities throughout the nation are subject to the QR code-based registration system, according to health authorities. Also in the capital region, internet cafes are also required to keep an online entry log. Facilities that fail to keep an entry log or allow people to enter without signing in may face a fine of up to 3 million won ($2,500), in addition to a possible shutdown, according to the health authorities. The system was launched for a test run last month as a series of cluster infection cases involving nightclubs and bars left the local authorities unable to immediately identify those who may have been exposed to the virus for weeks. The QR code-based registration system will allow authorities to quickly identify those who may have encountered an infected person, and thus minimizing the time each potential patient may be spreading the virus. Authorities said the personal information of people entering any facility subject to the scheme will be stored separately from their record of entry for privacy reasons and only be matched when needed to find them. The QR code registration system is available in a smartphone app, Pass, jointly launched by three major mobile service providers here and also on the widely used messaging application, Kakao. (Yonhap)