Sponsored REITs poised to boost South Korea’s public REIT
October 24, 2024 / By Yeonkyung Tak
The development of public REITs in South Korea began with the listing of AREITs in 2011. The market’s growth trajectory was steep. In 2018, only five listed REITs had a market capitalisation of KRW 1.6 trillion. By the end of 2020, this number had increased to 13 listed REITs, with a total market capitalisation of KRW 5.8 trillion. Fast forward to Q3 2024, the market has expanded to 24 listed REITs, boasting a total market capitalisation of KRW 16.3 trillion — tripling in volume in less than four years.
Corporate-sponsored REITs have driven the recent surge in the public REIT market. Sponsored REITs such as SK REITs (KRW 1.4 trillion as of August 2024) and Lotte REITs (KRW 874.7 billion as of August 2024) lead the market in terms of capitalisation. Recent trends indicate that conglomerates with sponsored REITs increasingly explore strategic opportunities to acquire assets.
In 3Q24, Hanwha REIT, which previously owned five office buildings of Hanwha Group’s affiliates, acquired another Hanwha Building in Janggyo-dong for around KRW 808 billion. The acquisition allows Hanwha Life Insurance to secure liquidity by incorporating the building into Hanwha REIT. Lotte Group, a retail-focused conglomerate, holds assets such as department stores and hypermarkets through their sponsored REITs. This strategy not only improves liquidity but also enables stable operations.
Figure 1: Public REITs total market capitalisation (KRW Billion)
Source: KAREIT, REITs Information System
Figure 2: Sector breakdown of public REITs
Source: KAREIT, REITs Information System
Listed REITs show a significantly different sector composition compared to the overall REIT market. While the overall REIT market heavily relies on the residential sector, which accounts for about 47.9% of the total REIT market capitalisation (REITs Information System), listed REITs present a contrasting picture. Among the 24 listed REITs, only two hold residential properties. The majority focuses on commercial real estate types such as office, logistics, and retail. In the currently residential-centric REIT market, listed REITs are pivotal in diversifying the portfolio.
Riding this trend, Hana Asset Trust applied for a business license from the Ministry of Land, Infrastructure and Transport (MOLIT) this quarter for Hana Office REIT. This REIT is based on the Hana Financial Group Gangnam HQ, which Hana Trust acquired from Hana Alternative Asset Management. It will not only be Hana Financial Group’s first listed REIT but also the first new listing since Samsung FN REIT was listed in April 2023. Shinsegae Group, a retail-focused conglomerate, has also applied for a business license for its first sponsored REIT, Shinsegae Star. With Starfield Hanam as its underlying asset, it is preparing to go public by next year.
South Korea’s public REIT market is well-positioned for future growth. Public REITs are crucial in democratising property investment, allowing a broader range of investors to participate in the real estate market. In addition to sector diversification, public REITs provide managers access to larger capital pools for asset acquisitions, offering investors flexibility in investment options and periods without the burden of direct ownership.
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