Seoul buildings being turned into biz hotels en masse

Seoul’s Myeong-dong area is turning into a business hotel town.

Wise Building by Korea Exchange Bank headquarters will be transformed from an office building into a 200-room business hotel next month.

Cheongbang Building by Sejong Hotel will be reborn as a business hotel in August. The third to 17th floors at Milliore fashion mall in Myeong-dong will also be changed into a 780-room hotel to launch early next year.

Preparation is also underway to transform M Plaza, Samnyeon and Cheonghui buildings into business hotels.

The six new hotels alone will have a combined 1,500 guest rooms.

Work is underway to transform commercial and office buildings into business hotels both north and south of Seoul`s Han River. As of late May, applications for more than 20 buildings have been submitted to the Seoul city government for remodeling or construction for transformation into tourist hotels. If hotel-class general lodging facilities are included, the number of such buildings increases even further.

The conventional hotel industry has also joined this new trend, with Lotte Hotel taking the lead. Lotte, which opened the profitable Lotte City Hotel Mapo in Seoul`s Gongdeok district in April 2009, is significantly expanding investment in low- to mid-priced hotels.

Lotte City Hotel Mapo posted 13.3 billion won (11 million U.S. dollars) 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 and business hotels on Jeju Island in 2013 and in Seoul’s Seocho and Dongdaemun districts in 2015.

Leading domestic hotel chains will also enter the business hotel sector including Imperial Palace Hotel, which opened a business hotel in Seoul`s Hannam district last year.

The reason for the surge in business hotels is the skyrocketing number of foreign tourists in Korea. The tourist number has steadily risen from 2006 and started to see double-digit growth every year from 2009, resulting in a severe shortage of lodging facilities for visitors.

According to the Seoul city government, the number of foreign tourists is projected to hit 9.62 million this year, and this will require about 51,000 rooms. The number of tourist hotels in the city is a mere 27,000, however.

As a result, the average occupancy ratio of tourist hotels in Seoul exceeds 90 percent, with vacancies hard to find.

Another reason for the business hotel boom is growing vacancies in office buildings in downtown areas. Kim Jae, a manager at real estate investment consultancy CBRE Korea, said, “Ultra-large building projects have continued to grow in number in central Seoul, and owners of mid to small-size buildings that have lost competitiveness are scrambling to survive through business hotels.”

The central government’s policy to promote construction of tourist hotels has also added to the momentum. Predicting an annual shortfall of 27,000 to 32,000 rooms over the next two to three years, the central and Seoul city governments are devising diverse measures to support the hotel business, including deregulation of hotel construction.

Experts have conflicting projections for the business hotel sector, however. Lee Jong-a, a researcher at the KB Financial Group`s think tank, said, “Mid- to low-cost hotel rooms are in severe short supply,” adding, “Since Chinese tourists are surging in number due to China’s economic growth, the business hotel industry has an especially bright outlook.”

In contrast, Lee Nam-soo, chief of the real estate team at Shinhan Bank, said, “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.”

Owners of several office buildings in Seoul’s Jongno district are taking a more cautious approach. They considered turning their properties into business hotels until recently, only to shelve the plans after questioning profitability.

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