Korean logistics transaction volume hits over USD6.4b in 2023

This is approximately the same level seen in the previous year.

In a recent report, Savills revealed Korea’s total transaction volume of logistics centers including forward purchases reached KRW5.6 trillion (approx. USD6.4 billion), similar to that of 2022. 

However, when considering only hard asset transactions, it amounted to KRW2.2 trillion, down 30% from 2022 (KRW3.1 trillion). 

Here’s more from Savills:

The difference in the investment volume between forward purchase and hard assets is attributed to the completion of many assets with forward purchase contracts during the previous low-interest rate period, finalizing asset acquisition upon completion in 2023. 

By district, the Southeast accounted for the largest share at KRW1.5 trillion, consistently exceeding KRW1.5 trillion since 2020. The South Central District, on the other hand, saw a significant decline, recording only KRW110 billion, down 90% year-on-year. The drop is likely influenced by challenges such as the ongoing supply and demand imbalance of logistics centers, financial market constraints, and reduced profitability due to higher construction costs.

In terms of investor composition, foreign investors accounted for 46%, up 18%p from the previous year, while domestic investors was 38%, reflecting a 31% decrease from the previous year. Since 2020, the share of overseas investors has steadily risen, reaching its peak in 2023. Notably, in 2023, warehouses purchased by foreign investors, such as Dudong LG Logistics Center in Changwon, Cheonpyeong-ri Logistics Center, and CBRE GI Logistics Center in West Icheon were leased by reputable anchor tenants like LG Electronics, LX Pantos, and Coupang. These properties are strategically located adjacent to interchanges and highways. 

Regarding storage types, 76% of transaction volume was mixed storage, 17% dry, while 7% of cold storage when forward purchases were included. However, based solely on hard asset transactions, 59% was mixed storage, and 41% dry storage, with 0% cold. This shift reflects investors’ preference for dry storage over cold storage due to vacancy risks stemming from supply-demand imbalances in 2023, despite the previous attractiveness due to the relatively higher yields.

Following its peak in 2022, the price of logistics centers began to correct in 1H/2023. This led to a shift in cap. rates, increasing by 100 bps year-on-year to the mid 5%-range by the end of 2023 from a record-low level of 4.5% at the end of 2022. Additionally, effective cap. rates are projected to expand further due to the rising prevalence of rent-free periods, particularly for newly-completed logistics centers.