By Jane Han
Staff Reporter
Foreign investors have enjoyed an office market boom here for the past five to six years, with nearly 70 percent of all major investment activity in Seoul's 2007 office market involving a foreigner on either the buy or sell side. But with a slowdown in yield compression, what's the next moneymaker?
It's the lucrative industrial property market, says Darren Krakowiak, head of research and consulting, at Jones Lang LaSalle, a global real estate broker.
``While there have been numerous examples of success in the Seoul office market, only certain foreign investors have been able to enter the industrial landscape,'' he said in a Korea Times interview, Thursday.
An industrial property market encompasses anywhere from warehouses to factories, which in Korea are typically owned by companies themselves. In Western countries, businesses commonly rent space, rather than own the factory space they occupy.
``It's more efficient to rent so that companies can channel the cash to other areas of their specialty,'' says Krakowiak, explaining that such trend is already the norm overseas. Manufacturers specify the amount of space they need and lay out all the specifications, and property brokers try to find the right match. Leasing periods typically go beyond 10 years.
He said this leasing system will help attract more foreign firms here since removing real estate off the balance sheet is a huge reduction of business risk for first-time market entrants.
``They can free up the capital for their core business operation, instead of tying it up in property,'' he said.
Krakowiak exemplified AMB Property Corporation and Pro Logis, both owners and developers of distribution facilities worldwide, as foreign businesses that tapped into the premature industrial property market here.
``These firms took the risk and their yields are relatively attractive,'' he says.
AMD last year started building a 363,000 square foot logistics center at the Incheon International Airport for a multi-tenancy purpose.
Like AMD, other potential investors are placing their bet on logistics, says the executive of Jones Lang LaSalle.
``Logistics in Korea is so underdeveloped and lacks efficiency, so there is that much more room for growth,'' he stressed, adding that the government's backing to make Seoul into a logistics hub makes the market outlook brighter.
South Korea is concentrating on transforming existing ports to serve the Pacific rim. Total cargo traffic is expected to jump to 1.4 billion tons by 2011, partly due to the country's ideal geographical location.
``The strong growth of non-traditional retail channels such as TV shopping and e-retailing is increasing the need for warehousing and distribution,'' said Krakowiak, however, underscoring that the family-run chaebol are working as a hindrance.
The lack of leasing activity and the limited instances reduce the availability of market data which is required to make informed investment decisions, he explained.
Another minus factor is the established dominance of these firms that make entering the market difficult for foreign operators, which further reduces the potential pool of tenants.
Krakowiak says it will at least take five years for the industrial property market to be at the ranks of other advanced economies.