Colliers Radar
South Korea Industrial Property 2 October 2018
Korea Logistics Market Trends in Institutional Investment
2 Korea | Industrial Property | Colliers International
Judy Jang Associate Director | Research | Seoul
With the development of e-commerce, investors’ interest and asset weighting in logistics properties has been growing, especially because they tend to provide higher returns than office properties. In addition, logistics centres in Korea are increasingly state-of-the-art facilities, incorporating technologies such as robotics, voice recognition, and artificial intelligence. Global logistics conglomerates are acquiring IT companies, and we expect Korea to follow the trend due to the increasing demand for modern logistics facilities.
Recently, as the National Pension Service of Korea (NPS) and Public Officials Benefit Association has created a KRW350 billion “blind fund” to invest in domestic logistics centres, we expect the NPS to be a major investor in the logistics market. We believe that the yield on Korean logistics properties currently ranges from 6% to 7%. Over the next few years, we believe that yields will remain at around the current level or decline marginally given the growing interest of investors in logistics properties. As supply in Icheon and Yongin has been increasing, we think that districts south-west of Seoul such as Ansan and Pyeongtaek which have low supply and low land costs will be the next targets for investors.
Executive Summary
Most logistics warehouses are located adjacent to the Gyeongbu (Route 1), Yeongdong (Route 50), Jungbu (Route 35) and West Coast expressways (Route 15). The greater the accessibility to the Seoul metropolitan area, the more attractive assets are to investors. In the past, institutional investors mostly invested in sites with local developers, but nowadays transactions among institutional investors are increasing since the market has matured and many new warehouses and logistics properties can be sold on the open market. Also, due to the increase of capital for acquisitions of logistics assets in Asia, we expect foreign investors' interest in Korean logistics assets to continue over the next five years.
Unlike office properties, where price is mostly determined by the location and tenants, investors in the logistics market must consider location as well as the scale of the property, land prices, leaseholders, warehousing permits and approvals and the level of the facilities. The most important factor is the covenant strength of the tenant to provide stable operating income for investors.
The entire global logistics market is evolving, and demand from not only 3PL but 4PL providers, combined with IT technology, will likely expand. This is leading to cutting-edge and much larger scale distribution centres. Investors prefer strong tenants with long lease term and automated facilities to reduce costs and raise returns. Therefore, investors should be looking at market trends that financially support the development of modern logistics facilities.
Source: Colliers International Korea
Map of Seoul Area Logistics Districts and Main Expressways
3 Korea | Industrial Property | Colliers International
Contents
Demand for logistics ........................................................ 4
Distributors ....................................................................................... 4
Online shopping providers .......................................................... 4
Industrial supply by location .......................................... 4
Grade A logistics supply in the Gyeonggi Region .............. 4
Investors’ preference for industrial ............................... 5
Logistics investment in the past five years ......................... 5
Major investors in logistics ............................................. 5
Major overseas investors in logistics ..................................... 5
Major domestic investors in logistics .................................... 6
Major logistics investment ranking by deal size, Seoul
Metro, 2016 to H1 2018 ..................................................... 7
Major strategy & forecast for logistics ........................ 7
Key forecasts.................................................................................... 7
4 Korea | Industrial Property | Colliers International
Demand for logistics According to Statistics Korea, the volume of mobile
transactions has significantly increased due to the
increase of single-person households, who are fond of
shopping online. The recent trend of using the omni-
channel enabled payment systems available on mobile
phones contributes to the growth of domestic logistics
market as well.
Distributors
Demand for large sized, over 12,100 pyeong (40,000
sqm), logistics centres is also increasing as wholesale
distributors aggressively expand their infrastructure and
logistics services while consolidating into fewer, larger
facilities. E-Mart, the largest Korean retailer that
operates hypermarkets, has recently added a logistics
centre in Gimpo, to manage inventory for goods ordered
online. E-Mart plans to build six online-dedicated
logistics centres in Gyeonggi district by 2020. In addition,
Lotte, Shinsegae and SK plan to increase their
investments in logistics centres to strengthen their e-
commerce competitiveness.
Online shopping providers The quantity of lease contracts and acquisitions of
logistics centres in the Seoul metropolitan area are
increasing, due to the increasing number of e-commerce
companies, such as Coupang, T-Mon and
WeMakePrice, providing same-day and next-day
delivery services. Social commerce companies are
competing against each other by securing distribution
centres across the country.
Coupang's delivery model is representative of the
changes in the industry, as distribution centres for same
day deliveries are located near the downtown area.
Coupang currently has more than 10 logistics centres in
Incheon, Icheon and Deokpyung in Gyeonggi Province.
Coupang continues to increase the number of
distribution centres in line with the recent increase in the
volume for the same day deliveries.
Furthermore, in order to shorten their supply chain, retail
distributors are increasingly operating logistics centres
on their own, by developing facilities under their
command. The boundaries between distributors and
logistics operators are disappearing as competition
between the two different industries is intensifying.
Distributors continue to invest in logistics centres, and
the number of M&As within the logistics industry is
increasing. Coupang has recently established its
logistics subsidiary Coupang Logistics Service, in
preparation to enter the third-party logistics business.
Industrial supply by
location
Grade A logistics supply in the Gyeonggi Region
Most logistics centres in Seoul are located along the
Gyeongbu (Route 1), Yeongdong (Route 50), Jungbu
(Route 35) and West coast expressways (Route 15).
These areas provide excellent accessibility to the Seoul
metropolitan area, only an hour’s travel time, making
them the most sought after by investors.
Traditionally, the southern part of Seoul was the main
axis for logistics centres, such as Seoul’s satellite cities;
Yongin, and Suwon, being interconnected to Gyeongbu
Expressway (Route 1). This trend still exists, and
logistics centres located in the cities of Icheon and
Yongin are being continuously developed. The most
recent centre currently under development is Hwaseong
Dongtan Logistics Park in Suwon.
Since the logistics markets in Icheon and Yongin, which
are near the Gyeongbu (Route 1) and Jungbu (Route 35)
expressways, have become saturated with excess
supply, the southwest region of Gyeonggi-do, such as
the cities of Anseong, Pyeongtaek and Ansan, has
provided alternative options for investors and developers
due to the lower quantity of logistics centres and low
land costs in this area.
In addition, institutional investors are interested in the
development and investment opportunities in Incheon
and Gimpo due to the lack of supply and increasing
demand.
5 Korea | Industrial Property | Colliers International
Investors’ preference for
industrial
Logistics investment in the past five years
Warehouse acquisitions by institutional investors peaked
in 2017 with a total transaction volume of KRW1.15
trillion (USD1.2 trillion). In the last five years, Yongin and
Icheon accounted for more than 60% of the total
transactions, making them the most favoured area for
institutional investors.
During that period, institutional investors preferred to
acquire logistics centres of 20,000 pyeong (66,116 sqm)
on average, with most investments going into facilities of
at least 10,000 pyeong (33,058 sqm). Since foreign
investors prefer large logistics centres, they have been
actively involved in purchasing them in the construction
phase or developing them directly. The average sales
price for the region was approximately KRW40 million
per pyeong (USD1,127 per sqm).
Source: RCA, Colliers International Korea
Source: RCA, Colliers International Korea
Major investors in logistics The logistics investment market has been dominated by
foreign investors such as GIC, Mapletree and Deutsche
Asset Management. Due to the market opacity and
information asymmetry, dominant retailers or individuals
were major investors in the past. However, recently,
local institutional investors like the NPS are actively
seeking investment opportunities in the logistics sector.
They prefer stable assets with guaranteed cash flow and
secure tenants.
In addition, as domestic institutional investors are
participating in logistics investments, asset management
companies specialising in logistics properties like ADF
Asset Management and Kendall Square Asset
Management are also gaining market share by creating
investment vehicles.
Major overseas investors in logistics
Investor Country Acquisitions
Volume KRW, bn
# Props
GIC Singapore 313.9 4
Deutsche Asset Germany 284.5 4
M&G Real Estate England 157.4 1
Morgan Stanley USA 102.6 1
Malaysia Employment Provident Funds
Malaysia 67.5 1
Blackstone USA 66.6 2
Mapletree Singapore 64.4 3
SC Capital Singapore 3.3 1
Source: RCA, Colliers International Korea
GIC has been the most active foreign investor in the last
five years based on both the asset value and number of
transactions. Most significantly, GIC purchased
Deokpyung Hyundai Logistics for KRW156 billion
(USD142 million) through ADF Asset Management. It
also invested in the Dongtan Logistics Complex, which is
scheduled to be completed in 2019 for KRW800 billion
(USD676 million,) also through ADF Asset Management.
Currently, GIC owns more than 10 logistics centres in
Korea.
Deutsche Asset Management acquired Logiport Icheon,
developed last year by LaSalle Investment Management,
for KRW61.2 billion (USD54 million). In addition, it is
actively investing in Korean logistics centres, such as
MQ Logistics Center in Yongin and Deongpyeong
Samsung Electronics Logistics Centre. We expect that
Deutsche Asset Management will continue its investment
in Korean logistics centres.
-
200
400
600
800
1,000
1,200
1,400
2013 2014 2015 2016 2017 1H 2018
Bill
ion
(krw
)
Institutional Investors' Logistics Investment (Seoul Metro)
38%
22%
39%
Logistics Area Preference
Icheon Yongin Others
6 Korea | Industrial Property | Colliers International
Malaysia Employment Provident Funds (EPF) purchased
the Icheon Logistics Center in Gyeonggi Province for
KRW67.5 billion (USD60 million) by using ADF Asset
Management’s investment vehicle. EPF selected ADF
Asset Management, IGIS Asset Management and
Pebblestone Asset Management as domestic investment
partners. EPF plans to expand its investment in Korea,
starting with this investment.
Morgan Stanley has invested in the TJ Logistics Center
in Incheon for KRW105 billion (USD105 million) through
the KORAMCO REITs & Trust’s investment vehicle.
Blackstone participated as an investor in a real estate
fund created by Mirae Asset Global Investment and
acquired two logistics centres.
Mapletree has been investing in Korea since 2008 and is
currently operating 11 logistics centres. SC Capital
purchased a logistics centre in Icheon for KRW33 billion
(USD29 million), with Kendall Square Asset
Management.
In addition, LaSalle Investment Management recently
sold the Logiport Icheon Logistics Center to Deutsche
Asset Management. LaSalle Investment Management
used the LaSalle Asia Opportunity Fund IV to make
investments in the Asia Pacific region. It is actively
investing in the domestic logistics market by setting up a
new fund.
Meanwhile, APG Asset Management, which is in charge
of the general partnership for the Canada Pension Plan
Investment Board (CPPIB) and the Dutch pension, is
investing in a real estate fund established by Kendall
Square, which is developing a logistics center in
Gyeongnam. In addition, KKR has decided to invest in
the development of a state-of-the-art logistics centre at
SK Incheon Petrochemical Park.
Major domestic investors in logistics
IGIS Asset Management purchased Yanggi Logistics
Center in Gyeonggi-do for KRW404 billion (USD365
million) by utilising blind funds (i.e. funds that collect
contributions from investors without having a fixed
investment target) created by NPS and other investors.
CJ Korea Express has leased 80% of the property for 15
years. It is the largest logistics property acquired by
domestic investors.
Kendall Square Asset Management established a real
estate fund that invests in logistics assets and
development sites located in the Gimhae city in Busan.
Moreover, it is developing logistics centres in Bucheon,
Ilsan, and Yongin. Recently, the firm participated in the
acquisition of Cheil Industries Logistics Center, the
largest logistics centre in Gimpo, and has been selected
as preferred bidder to acquire the Cheil Industries
Logistics Centre.
The Public Officials Benefit Association (POBA) invested
in logistics centres to diversify its office-oriented
investment portfolio. The POBA initially invested in the
development of Yongin Baekam Logistics Center. The
developer of the logistics centre was MQ Logistics. The
yield was reported to reach 7%.
Additional transactions include: Mastern Asset
Management purchased the Icheon International
Logistics Center for KRW23 billion (USD20 million). ADF
Asset Management acquired the Yeoju Logistics Center
for KRW45 billion (USD40 million).
Company Name Acquisitions
Volume KRW, bn
# Props
IGIS AMC 463.1 2
NPS 404.3 1
Kendall Square 265.9 4
ADF AMC 265 7
Mirae AMC 221.6 4
NH Securities 218.7 1
Bookook Securities 218.7 1
SK Group 130 2
Mastern AMC 123.9 3
KORAMCO 105 1
POBA 835 1
Source: RCA, Colliers International Korea
7 Korea | Industrial Property | Colliers International
Major strategy & forecast
for logistics
The recent yield for logistics assets is 7%-10%,
significantly higher than that of office investments, which
are approximately 4%-5%. This stokes demand for
logistics property due to the limits of office property
yields. In addition, since logistics centres usually have
long-term contracts of 10 years or more, investors prefer
the predictability and stability of the profits in this sector.
As logistics centres become tradable assets, most
transactions will likely be driven by institutional investors
rather than end-users. It is difficult to make a profit
investing in older logistics centres, so investors are
increasingly developing their logistics complexes directly.
Competition for securing logistics centres in decent
locations has intensified.
Although lease-back transactions are still favoured by
investors, mid to long-term lease transactions are also
increasing. Logistics centres with guaranteed long-term
lease contracts are traded at higher prices than other
facilities.
Key forecasts
✓ Industrial assets will likely see relatively high
returns compared to office investments
✓ An increasing number of presales before
construction completed
✓ Increase in the number of transactions of large-
scale logistics complexes
✓ Lease-back deals preferred by investors
✓ Continuing competition between domestic and
foreign investors
✓ Price increases
✓ Increased demand for logistics centres with cold
chain capabilities
✓ Increased development of cutting-edge logistics
facilities
Over the next five years, with higher yields than office
assets, we see logistics assets as one of the most
promising investments. However, rising interest rates
and increased supply are threats.
With increasing supply coming online, the current
landlord-oriented market may change to a tenant-
oriented market, depending on the volume of supply.
Major logistics investment ranking by deal size, Seoul Metro, 2016 to H1 2018
Ranking Logistics centre name Location Year Area(py) Price
(KRW bn) Buyer/Investor
1 Hwaseong Dongtan Logistics Campus Hwasung 1Q16 187,960 800 ADF AMC, GIC
2 Yangji IC Logistics Center Yongin 2Q17 105,626 387.3 IGIS AMC, NPS
3 Homeplus Ansung Logistics Center Anseong 4Q17 19,989 157.4 M&G Real Estate
4 Hyundai Logistics logistics center Incheon 3Q16 38.329 156 ADF AMC, GIC
5 Cheil Industries Logistics Center site Gimpo 4Q17 17,551 125 Kendall Square AMC
6 Icheon TJ Logistics Center Icheon 3Q17 16,788 102.6 Kormco, Morgan Stanley
7 Logis Pia Pyeongtaek 1Q16 13,298 89 Mirae Asset
8 MQ Baekam Logistics Center Yongin 3Q17 18,899 82.7 Deutsche Asset Management
9 NHN Weto Logistics Center Ilsan 2Q18 13,144 80 Kendall Square
10 Deokpyung Samsung Electronics Logistics
Icheon 2Q17
18,480 78.5 Deutsche Asset Management
11 Daehwa Logistics Center Icheon 4Q17 16,591 75 ADF AMC, EPF
12 Blackstone Anseong & Yongin Able Logistics
Anseong Yongin
1Q17 18,136 66.6 Mirae Asset, Blackstone
13 Dongsan Logistics Center Yongin 1Q18 16,455 65.8 Mirae Asset Asset Management
14 Logiport Ichon Icheon 1Q18 13,145 61.2 Deutsche Asset Management
15 DSL Logistics Center Icheon 1Q18 14,415 51.2 Kendall Square AMC
16 Hansol refrigerated storage Gwangju 3Q17 8,088 48.1 Orion Capital Management
17 Baeam Daekonet Yongin 1Q16 9,415 39.8 Alpha Asset AMC
18 Tae Eun Logistics Center Icheon 3Q17 4,919 33 Kendall Square, SC Capital
Note. 1 pyeong = 3.31 square metres.
Source: RCA, Colliers International Korea
Copyright © 2018 Colliers International.
The information contained herein has been obtained from sources deemed reliable. While every reasonable effort has been made to ensure its accuracy, we cannot guarantee it. No responsibility is assumed for any inaccuracies. Readers are encouraged to consult their professional advisors prior to acting on any of the material contained in this report.
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Primary Author:
Judy Jang
Associate Director | Research | Korea
+82 2 6325 1900
judy.jang @colliers.com
For further information please contract:
Kichoon Jung
Managing Director | Korea
+82 2 6325 1901
kichoon.jung @colliers.com
Colliers International | Korea
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+ 82 2 6325 1900
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