LONDON (Bloomberg) - South Korea's National Pension Service (NPS), the nations biggest investor, agreed to buy HSBC Holdings plc.'s London headquarters for £772.5 million ($1.29 billion) as the fund boosts overseas assets.

HSBC, Europe's largest bank by market value, will remain at 8 Canada Square, a 656-foot (200-metre) tower in the Canary Wharf financial district, following the sale to Seoul-based NPS, according to a statement on Friday. Officials at the South Korean fund were not available for comment.

The South Koreas state pension fund plans to double its international assets to 15 percent of its total holdings by 2015, the fund said in July. This will include property acquisitions in the world's major cities, the fund said in a November 5 statement when it announced a 350 billion won ($302 million) purchase of London office buildings.

The London real-estate market has gone through a price correction since hitting the bottom in the first half of 2007 and profitability for investment has improved considerably, the fund said in the November 5 statement.

NPS had 270 trillion won of assets at the end of September, including 3.05 trillion won worth of real estate holdings as of end of August, according to its website.

Other sovereign wealth funds have bought commercial properties in London this year, taking advantage of lower prices and the pounds weakness. On November 4, Qatar agreed to purchase the US embassy building in Mayfair for an undisclosed amount, while in June a fund controlled by Oman acquired a majority stake in an office building valued at £445 million.

The funds have focused on more expensive buildings on prime sites occupied by tenants with good credit ratings and long leases. The financial crisis has made it harder for real estate investors to obtain debt finance, particularly for larger, costlier properties.

NPS this month spent 268 million pounds to buy 88 Wood Street in the City of London district and a 50 percent stake in 40 Grosvenor Place, near Buckingham Palace.

Values of offices in the City of London, the UK capitals main financial district, fell 50 percent from the markets peak in July 2007 to August 31, according to Investment Property Databank Ltd. The pound depreciated by 16 percent against a basket of other currencies in the two years ended June 30, Bank of England data show, making London real estate even cheaper for overseas investors.

In the City, the rate of return for prime office buildings worth more than £125 million declined 0.5 percentage point to seven percent in the third quarter, according to Jones Lang LaSalle Inc. The rate of return falls as property values increase.

This is testament to how attractive London is to outside investors, James Young, a partner at Cushman & Wakefield Inc., said of HSBCs deal with NPS. Young heads the brokers City of London office.

NPS is acquiring the headquarters building for an initial investment yield of less than six percent. HSBC will pay NPS an initial annual rent of £46 million for the Canada Square building, where more than 8,000 people work. The lease runs for 17-and-half more years.

Prospects for the central London office market may also be improving because the financial crisis stymied new development. As the supply of new buildings coming up for rent wanes, its helping halt a slide in rents.

Rents in the Dockland areas of East London, where Canary Wharf is located, were about £37.50 a square foot for prime office space in the third quarter, Chicago-based Jones Lang estimates.

It's the second time in two years that HSBC has divested the Canary Wharf building. The bank sold the skyscraper to Metrovacesa SA in June 2007 for £1.09 billion, the highest price paid for a single building in the UK. It then bought the property back in December 2008 for £838 million, or a £250 million profit, after the Spanish developer failed to refinance a loan from the bank.

HSBC had said that if the London, Paris and New York buildings didnt fetch the right price - either collectively or individually - it would not sell.

The transaction announced on Saturday will allow HSBC to book a £350 million gain in its 2009 accounts, the bank said in the statement.

HSBC agreed last month to sell its Manhattan headquarters at 452 Fifth Ave. for $330 million in cash to a company controlled by Israeli investor Nochi Dankner.

The bank is also in talks to sell 103 Avenue des Champs- Elysees near the Arc de Triomphe in the French capital.

CB Richard Ellis Group Inc. and Linklaters LLP advised HSBC on the sale of the London property. JP Morgan Asset Management and Berwin Leighton Paisner advised NPS.