Seoul Sees Boom in Conversions to Business Hotels
Six buildings in Seoul’s Myeong-dong shopping and entertainment district are being converted into business hotels, resulting in 1,500 new guest rooms coming online next year.
As of late May Seoul received applications to convert 20 buildings on both sides of the Han River into business hotels, not counting conversions for use as general lodging facilities.
The trend is the product of a recent boom in foreign visitors combined with excess office space in downtown Seoul.
The number of foreign visitors has risen steadily from 2006, but has seen growth jump to double digits starting in 2009. The number of foreign tourists is projected to hit 9.62 million this year, requiring about 51,000 rooms. The city currently has only 27,000 rooms. As a result Seoul hotels are often fully booked and average above a 90 percent occupancy ratea, according to the Seoul city government.
On the other side of the trend is the surplus of office space resulting from a spate of major downtown highrise construction projects in recent years. This has left mid- to small-size buildings losing tenants, forcing them to seek new uses. They have been encouraged to convert into tourist and business hotels by the national government’s policy of promoting hotel construction.
Based on projections of an annual shortage of 27,000 to 32,000 rooms over the next two to three years, the national and Seoul city governments are pushing various measures to encourage entry into the hotel business, including deregulation of hotel construction.
“Mid- to low-cost hotel rooms are in severe short supply,” said Lee Jong-a, a researcher at the KB Financial Group`s think tank. “Since Chinese tourists are surging in number due to China’s economic growth, the business hotel industry has an especially bright outlook.”
Not everyone is sanguine about prospects in the Seoul hotel market.
“Investors are recklessly moving into the hotel business without understanding the characteristics of the sector, which is susceptible to business cycles and takes a long time to recover investment,” said Lee Nam-soo, chief of the real estate team at Shinhan Bank.
The strongest indicator of prospects for the Seoul hotel sector is the fact that the hotel industry too has also joined the trend. Lotte is aggressively expanding its investment in low- to mid-priced hotels. Its Lotte City Hotel Mapo in Seoul`s Gongdeok district, opened in April 2009, posted 13.3 billion won ($11.6 million) in annual sales and 20 percent in operating profit ratio last year.
Lotte will launch Lotte City Hotel Gimpo in Seoul`s Banghwa district at year’s end, followed by business hotels on Jeju Island in 2013 and in Seoul’s Seocho and Dongdaemun districts in 2015.
Imperial Palace Hotel, a leading domestic hotel chain, opened a business hotel in Seoul`s Hannam district last year.