Budget names rapidly exiting from Korean hotel map while luxury category flourishes

[Photo by Han Joo-hyung]

South Korea is rapidly losing budget hotels as tourists fail to return in full force after two years of hiatus, whereas luxury hotels are flourishing as Koreans are still restricted to home for spending due to undying virus risk.

Luxury hotel operators in Korea reported more than 50 percent in on-year growth in the first quarter and raised higher expectations for the summer peak season.

Revenue at Lotte Hotel in the first quarter rose 59 percent on year to 1.47 trillion won ($1.13 billion), followed by Hotel Shilla up 50 percent to 1.09 trillion won. Josun Hotels & Resorts saw its revenue in the same period up 75.3 percent to 90.7 billion won. Bookings at luxury hotel names hit over 90 percent for July and August.

Hotels in popular tourist destinations such as Busan and Jeju have already been fully booked.

South Koreans are enjoying luxuries at home as most are still nervous about venturing abroad amid resurgence of virus variants.

Foreign tourists also have been returning at a snail’s pace.

According to the Korea Tourism Organization (KTO), the number of foreign visitors to Korea in June amounted to 227,713, surpassing the 20,000 mark for the first time since the onset of the pandemic. The number of foreign tourists has topped 10,000 for three consecutive months since April.

The number of visitors from Japan is pivotal for further recovery in the number of foreign tourists in Korea as it is uncertain when Chinese tourists will be traveling abroad under Beijing’s strict zero-Covid policy.

Major hotel brands also have been diversifying and upgrading their services to lure more locals during the pandemic period.

Lotte Hotel opened “Signiel Busan” – part of its luxury landmark hotel brand Signiel - in June 2020. Hotel Shilla also opened a new branch of its premium hotel brand “Shilla Stay” in Seoul in April 2020 and another in Busan in April 2021. Josun Hotels & Resorts – a subsidiary of E-mart – opened five new hotels over the past two years. Hanwha Hotels & Resorts added “Belle Mer” in Yeosu in July 2020 and “Breathe Hotel” in Yangyang in July 2021 to its hotel lineup.

Hotels also started to actively deploy technologies such as robot deliveries, voice recognition technology, and self check-in kiosks to enhance personnel efficiency and released unique hotel packages such as pet-friendly and kid-friendly packages to lure more visitors.

The budget category, however, is coming down due to protracted virus crisis.

Over the past two years, hotel property transactions in Korea surged as the overall hotel industry faced significant headwinds from the pandemic, forcing many hotels to close down. According to global real estate services firm Jones Lang LaSalle (JLL), transactions of hotel businesses in Korea rose 80 percent on year to 1.7 trillion won in 2021. JLL estimated hotel sales to top 1.2 trillion won this year.

The largest number of transactions took place in Gangnam-gu, a district in Seoul with active development. However, many hotels on sale in Jung-gu - the district with the largest number of hotels in Seoul – have failed to find buyers. Jung-gu, the capital city’s old downtown with many historic sites, office buildings and popular shopping districts, has not seen recovery in foreign tourists reach pre-pandemic levels. The number of budget hotels in Seoul has grown faster before pandemic, putting that many at the risk of closing down.

According to the Ministry of Culture, Sports, and Tourism, the number of registered hotels for tourists in 2019 was 333 with 53,564 rooms, soaring 120 percent from 151 businesses and 105 percent from 25,710 rooms in 2012. The number of overseas tourists in Korea in 2019, however, reached 17.5 million, up only 36 percent from 11.14 million in 2012.

[ㄏ Maeil Business Newspaper & mk.co.kr, All rights reserved]