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CBRE Group, Inc. is the world’s largest commercial real estate services and investment firm, with 2017 revenues of $14.2 billion and more than 80,000 employees (excluding affiliate offices). CBRE has been included in the Fortune 500 since 2008, ranking #207 in 2018. CBRE offers a broad range of integrated services, including facilities, transaction and project management; property management; investment management; appraisal and valuation; property leasing; strategic consulting; property sales; mortgage services and development services.

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CBRE Global Investors, combined with CBRE Clarion Securities and CBRE Caledon, is one of the world’s leading real asset investment managers with $105 billion in assets under management.

Built up over more than 40 years, our unparalleled platform is focused on real assets, giving our institutional clients access to real estate and infrastructure in the Americas, Europe and Asia Pacific. Our clients benefit from a complete range of investment solutions including equity and debt, direct and indirect, and listed and unlisted strategies.

Trammell Crow Company, founded in Dallas, Texas in 1948, is one of the nation’s oldest and most prolific developers of, and investors in, commercial real estate.The CBRE Global Investors and Trammell Crow Company platforms make up the Real Estate Investments division of CBRE Group.

The Real Estate Investments division is led by
Danny Queenan, Global CEO, Real Estate Investments.

BLOGS

Regularly released content on the state of the real estate and infrastructure industry are produced by our subject matter experts and shared on their blogs. A selection of them can be found below.

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ASIA PACIFIC WATCH

We estimate that South Korea makes up 2.3% of the global investable universe of property in 2019 and MSCI estimates that by GAV it ranks 17th of the countries they track globally. In terms of trade, it is a true superpower, ranking in the global top ten of countries in terms of export/import volumes. But it is e-commerce where it is the global leader – Euromonitor finds that over 23% of the country’s retail sales in 2018 were transacted online, several percentage points higher than the next ranked China, UK and US. Its economic growth and social progress have been very impressive in recent decades, although geopolitical tensions on the Korean peninsula have historically been a big swing factor in capital flows into both the Korean equity market and its property market as well. In the past year, its property investment activity reached an all-time high, backed by increasing demand from both domestic and cross-border investors. Perhaps the relative détente in North-South Korean relations, despite scuttled talks in Hanoi last month, were a factor in the surging investment volumes of nearly USD 22 Billion in 2018. The impressive aggregation of domestic institutional capital seeking yield at home is also an important variable. MSCI-IPD reported that Korean all-property delivered 6.8% unlevered total returns in 2017, taking the three-year (2015-2017) average annual return to 7%. 2018 performance results will be released in the coming month.

NEAR-TERM GROWTH SOFTENING

South Korea’s GDP growth momentum in the near-term is expected to weaken to 2.3% for 2019 and 2% in 2020 (Oxford Economics). Private consumption is expected to remain under pressure, owing to a mounting household debt-repayment burden and its exports are forecast to decelerate notably to 3.3% on average to 2023 which is far lower than its LTA of 7.6%. Inflation is expected to remain below the historical average CPI of 2.4% with an annual average rate of 2.1% for 2019-23. The Bank of Korea may retain a fairly accommodative monetary policy to support growth, and any further increases to the policy rate will likely be gradual. 10-year government bonds had an annual average yield of 3.8% between 2003 and 2018 with a forecast of 3.2% out to 2023.

APRIL 2019

21,205.81

0.8%

Nikkei 225

29,051.36

1.5%

Hang Seng

3,090.76

5.1%

Shanghai Composite

110.68

1.0%

Yen/Dollar

Data points through end of March 2019. Change represents month-over-month change.

SOUTH KOREAN GDP AND CPI TRENDS

Note: Forecast trends are based on the ‘base case’ scenario as of January 2019.
Source: Oxford Economics

PRINCIPAL CONTRIBUTORS:
Shane Taylor
Juliet Cha
INVESTMENT DEMAND HITS NEW HIGHS

Commercial property transaction volume in South Korea has been at record high levels for the past three years but 2018 smashed all previous records. 2018 was very much about domestic institutional investor demand but it also saw increasing demand from cross-border buyers. More than $21.9 billion was invested in the country’s property market last year: 40% higher than the previous record in 2017 (Real Capital Analytics). That said, big ticket office and retail deals in central Seoul dropped following recent sharp yield compression in the last quarter of 2018. The office sector still dominated the total investment volume with USD 14.3 billion in 2018 followed by retail with USD 3.9 billion and industrial with USD 2.1 billion. The hospitality sector recorded 196% YoY growth to USD 1.5 billion in transactions last year.

SOUTH KOREAN PROPERTY TRANSACTION VOLUME BY SECTOR
Note: Transactions include properties and portfolios USD 10 million and greater. Development sites are excluded.
Source: Real Capital Analytics
STRONG OFFICE LIQUIDITY DESPITE SOFT FUNDAMENTALS

Net absorption in the Seoul office market amounted to 151,000 sqm in 2018, but the tenant-driven market continued with an additional new supply of 321,000 sqm. The overall Seoul office vacancy rate hovered around 11% in the fourth quarter of 2018. The GBD was the tightest of the major submarkets but still with vacancy near the 7% level followed by the CBD with 12.2% and the YBD with 15.2% for the same period. Occupier demand has marginally recovered with relocations of several large corporations and IT related occupiers, but relatively large tenant-inducement packages are required by tenants. The market rents are forecast to record marginal growth in the next few years with the GBD expected to outperform. Thus, despite strong investment demand, the occupier fundamentals remain weak.

SEOUL OFFICE SUPPLY, DEMAND AND VACANCY
Source: CBRE ERIX
RETAIL MORE SPECIALISIED AND SOPHISTICATED

As retailers seek to reduce operational expenditure given challenging domestic economic growth, cost-effective spaces in emerging retail areas or traditional business districts are becoming popular. Office landlords in major business districts have begun to invest in transforming retail facilities to provide a better experience and wider range of shops for tenants and visitors. From a landlord perspective, providing a high quality and convenient retail offering to office tenants can both enchance asset value and provide a foundation for increasing rents. F&B remains a major driver of leasing demand in urban retail facilities. The rental growth of Greater Seoul shopping centres for the next five years we forecast to be 2.7% which is lower than the past 13-year LTA of 3.1%.

SEOUL SHOPPING CENTRE RENTAL TRENDS
Source: CBRE Global Investors 1H19 Forecasts
STRONG LOGISTICS BUYING SPREE LOWERING YIELDS

The Korean logistics sector has outperformed the “all property” index ever since inception in 2015. The industrial sector delivered 7.9% unlevered total returns in 2017, taking the three-year average return to 9.1%, while total returns for office and retail were 6.9% and 7.1%, respectively (MSCI) for the same period. We forecast Greater Seoul logistics will continue to outperform the other sectors for the next five years. Yields have compressed around 307 bps since 2009 and reached an all-time low by the end of 2018. The logistics yield spread to 10 Year government bond by end 2018 was 384 bps: slightly below the 12-year LTA spread of 398 bps given strong compression in yields. Given the strong buying spree of these prime logistics assets, yields are forecast to compress slightly further in the near term.

GREATER SEOUL LOGISTICS TO 10 YR GOVERNMENT BOND YIELD SPREAD
Sources: Oxford Economics, CBRE Global Investors 1H19 Forecasts
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This information is for our clients and investors only. Please note that the content of this report is for informational purposes only and should not be viewed as investment advice or an offer or solicitation. Any opinions are solely those of the Strategy and Research Team of CBRE Global Investors and are subject to change without notice, and may not be consistent with market trends or future events. This research is based on current public information that we consider reliable, but we do not represent it as accurate, updated or complete, and it should not be relied on as such.

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