China and South Korea investment set to increase

Seoul, South Korea, from where funds will continue departing to invest in Western markets Photo: Swisscan

Investment from China, South Korea and Japan is expected to increase in the coming years, as capital flows from East to West.

A new report from by PwC and the Urban Land Institute (ULI) highlights the continuing trend of China and South Korea investment in real estate overseas. The report forecasts this to be supplemented in the years to come by pension fund capital from Japan, with 84 per cent of Asia-Pacific investors surveyed expecting cross-border capital into Europe to increase or significantly increase.

One factor behind the trend is the so-called ‘flight to safety’, which is leading many investors to deploy capital in what they consider to be a safe market. Money currently being directed at major assets in the UK and US is likely to find its way to other, less high-profile cities in Germany, France and the US, predicts PwC.

Simon Hardwick, Legal partner and one of the report’s authors, comments: “There is still a wall of capital targeting real estate opportunities in many markets across the globe. The search for better yields has taken some investors into development and secondary markets, moving them up the risk curve. But investors must strike a balance between the need to deploy capital and the ability to achieve good returns, at a time when there is such a difference in the economic conditions across the globe.

“Real estate investors have a wide range of issues to consider when making investment decisions. What is clear is that they may have to approach those decisions in a completely different way in the future. Capital allocations may need to be made to a wider range of asset types than ever before, ranging from retirement and student housing to data centres and self-storage.”

The report singles out several “megatrends” influencing the market, from the increasing urbanisation of society, a significant rise in the number of elderly people, technological advancements and the rise of economic power in emerging markets (due largely to an expanding middle class).