Insights into the Korean Logistics Sector: Analysis of Transaction Volume and Market Trends in 2023

In 2023, the Korean logistics sector witnessed a significant transaction volume, with total transactions reaching KRW 5.6 trillion (approximately USD 6.4 billion), a figure on par with the previous year, as reported by Savills. However, when analyzing only hard asset transactions, the volume amounted to KRW 2.2 trillion, marking a notable 30% decrease from the previous year’s KRW 3.1 trillion. This discrepancy between forward purchase and hard asset transactions can be attributed to the completion of numerous assets with forward purchase contracts during the previous low-interest-rate period, leading to final asset acquisitions upon completion in 2023.

Regional analysis reveals that the Southeast district accounted for the largest share of transactions at KRW 1.5 trillion, consistently exceeding KRW 1.5 trillion since 2020. In contrast, the South Central District experienced a significant decline, recording only KRW 110 billion, marking a staggering 90% decrease year-on-year. This decline is likely influenced by various challenges, including the ongoing supply and demand imbalance of logistics centers, constraints in the financial market, and reduced profitability due to higher construction costs.

Examining the investor composition, foreign investors claimed a significant share of 46%, representing an 18-percentage point increase from the previous year. Meanwhile, domestic investors accounted for 38%, reflecting a notable 31% decrease from the previous year. The trend indicates a steady rise in the share of overseas investors since 2020, reaching its peak in 2023. Notable transactions in 2023 involved 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, leased by reputable anchor tenants like LG Electronics, LX Pantos, and Coupang. These properties strategically located adjacent to interchanges and highways further enhanced their appeal.

In terms of storage types, mixed storage dominated the transaction volume at 76%, followed by dry storage at 17%, and cold storage at 7% when forward purchases were included. However, focusing solely on hard asset transactions, mixed storage accounted for 59%, dry storage for 41%, with no transactions recorded for cold storage. This shift underscores investors’ preference for dry storage over cold storage due to vacancy risks stemming from supply-demand imbalances in 2023, despite the previously perceived attractiveness of cold storage due to relatively higher yields.

Following the peak in 2022, the prices of logistics centers began to correct in the first half of 2023, leading to a shift in cap rates. Cap rates increased by 100 basis points year-on-year to the mid-5% range by the end of 2023, compared to 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. This evolving landscape in the Korean logistics sector reflects the dynamic interplay of market forces and investor sentiments, shaping the trajectory of future investments in the region.