DWS Group bullish on Korea logistics, upbeat on stock market reforms

Johannes Mueller, left, DWS Group’s global head of research, and Clemens Schaefer, global head of real estate for the Asia-Pacific, Europe, Middle East and Africa, attend a press conference at the International Finance Center in Seoul, Monday. Korea Times photo by Lee Yeon-woo

DWS Group said Monday that European real estate is expected to deliver annual returns of 9 percent over the next five years, offering fresh investment opportunities for Korean investors despite their recent caution toward alternative assets.

Speaking during a press meeting at the International Finance Center in Seoul, officials from the German asset manager noted that European real estate has become increasingly attractive as supply remains tight across major sectors, while demand continues to be supported by structural factors.

Clemens Schaefer, global head of real estate for the Asia-Pacific, Europe, Middle East and Africa at DWS Group, said vacancy rates in Europe's residential, logistics and office sectors are significantly lower than those in the U.S. But new supply is expected to remain limited, as high development costs and relatively low expected returns have discouraged developers from launching new projects.

The company forecast that European real estate will generate annual returns of 9 percent over the next five years, compared with 7.2 percent for the U.S. and 7 percent for the Asia-Pacific region.

Schaefer acknowledged that Korean investors, along with other global investors, suffered losses from overseas real estate investments in recent years, making them more reluctant to increase exposure to the sector.

However, he said the market is now entering a new phase, as those losses were largely caused by sharp interest rate hikes by major central banks after the COVID-19 pandemic, which triggered significant price corrections in the real estate market. With longer-term interest rates now stabilizing, he said such steep adjustments are unlikely to be repeated.

In Korea, where DWS has built a presence over the past 20 years, the company said it remains bullish on logistics assets but has grown more cautious on offices, citing different supply conditions.

Schaefer said Korea’s logistics market shows similarities to Europe, as current rents are not high enough to justify new development despite steady demand. By contrast, DWS has shifted more toward selling office assets in Korea, citing substantial new supply expected to enter the market.

Separately, DWS noted that the continued artificial intelligence boom and the Korean government's capital market reform measures are helping improve stock market valuations.

While high-volatility products, such as leveraged exchange-traded funds, could add short-term volatility, such factors are likely to be temporary, given the solid fundamentals of Korean companies, it said. The company also said policy efforts to channel more retirement pension assets into the capital market could help Korea’s capital market move to the next level.

DWS Group is a leading European asset manager affiliated with Deutsche Bank. It had 1.09 trillion euros ($1.24 trillion) in assets under management as of March 31.