Investors rush over to hotel funds to benefit from expected hotel boom in Seoul 


Keen investors are eying the hotel industry with new light.

Buoyed by the Korean Wave, more tourists have been visiting South Korea during the last few years and have increased the demand for hotel rooms.

More than 10.8 million are expected to visit Seoul this year, needing at least 43,000 hotel rooms, according to the Seoul Metropolitan Government. The number of available hotel rooms, however, is only about 28,900.

Following the demand, high-end hotel chains, business hotels and investors are planning to build or invest in new hotels throughout the metropolitan area.

“Hotels are garnering interest as they are making high profits. Seoul will be short of hotels until 2014, so active investments are expected until then,” said Seong Jun-won, a researcher at Shinhan Investment Corp.

Hotel Shilla plans to open several business hotels under the name Shilla Stay. The first one, with 308 rooms will open in Yeoksam-dong, southern Seoul, by December 2013. It has been planning for long to turn the Shilla Duty Free building in Jangchung-dong, central Seoul, into a business hotel as well.

“Most of our guests are foreigners, and the hotel is always a full house. Many Chinese and Japanese tourists stay in motels outside of Seoul like Ansan (in Gyeonggi Province) because of the lack of hotels in Seoul. So we have been taking an interest in business hotels since last year,” said Hong Sun-ju, a PR official at Hotel Shilla.

Lotte Hotel opened the 284-room Lotte City Hotel Mapo in February 2009 and the 190-room Lotte City Hotel Gimpo Airport last December. It also plans to open about three more business hotels throughout Seoul until 2015, in Cheongnyangni, Seocho-dong and Myeong-dong. Also under construction is JW Marriott Seoul Dongdaemun Plaza, which will open in central Seoul. It will have 16 floors and 170 rooms.

Cheonwon Industrial, owner of Ritz Carlton Seoul, and GS Group, owner of Intercontinental Parnas Seoul, both situated in southern Seoul, are each seeking to build a business hotel and a high-end hotel, respectively, right next to their existing ones.

International hotel chains are newly launching in South Korea as well, including Conrad Seoul, run by Hilton Worldwide, which will open in Yeouido with 434 rooms; and Crown Plaza Hotel, also planned to open in Yeouido. There are rumors that Mandarin Oriental Hotel and Four Seasons are also looking into advance into the market here.

Another significant trend is the conversion of office buildings into business hotels.

About 40 buildings have been newly approved as tourism accommodation facilities, according to the Seoul Metropolitan Government, and 24 of them will go under construction within the year. When completed, Seoul will be provided with 3,557 more rooms. Travel agencies such as Hana Tour and Modu Tour are some of those who stepped into the business, looking to invest in low and mid-price hotels.

Remodeling a building instead of constructing a new one can save time and money. Seoul City also offers benefits like alleviation of floor space index limitations or extension of property tax breaks when a building is registered to convert to a hotel, in an apparent move to swiftly increase room supply in the city.

Investors are already eyeing funds that invest in hotels.

Mirae Asset MAPS Global Investments invested to build a 26-floor hotel near Gwanghwamun in central Seoul, spent 231.8 billion won to build another in Yongsang-dong, and also plans to open one in Pangyo in Gyeonggi Province. Asia Asset Management put in 64 billion won to construct a high-end business hotel in Hwaseong City, Gyeonggi Province, and Japanese firm Nomurarifa Asset Management recently opened the office building-turned-Ramada Dongdaemun Hotel.

The National Pension Service is not missing out on the opportunity either -- it made a 620 billion won worth of real estate funding to invest in business hotels. Individual investors are showing interest in opportunities to buy hotel units as well. Such hotel funds are expected to make about 8 to 15 percent profits.

Market insiders, however, warn that investors should be careful because it is only an early stage of the hotel boom and earnings rate may drop if supplies get excessive or the number of tourists suddenly decreases. Investors should also note that hotels require a large initial investment that takes as long as 20 to 30 years to get back.

“There are some malicious operators that promise high returns at first but run away bankrupt if the results don’t come out as expected. It is important to see if the operator is credible,” said a market analyst.



By Park Min-young
(claire@heraldcorp.com)