Lodging shortage may ease as chaebol eye 5-star hotels

Banyan Tree Club and Spa Seoul (pictured above left) in Jangchung-dong designated Hyundai Group as the preferred negotiator to take over its five-star resort in January. Provided by the hotel

Korea’s big conglomerates are increasingly pushing to own and run five-star hotels to bolster their brands, much to the delight of local governments hungry for new landmarks and an antidote to accommodation shortages caused by swelling tourist numbers.

“A luxury hotel can enhance the image of a company’s brand, especially if it becomes a city landmark,” said Kim Jin-hyuk, a top researcher at the Samsung Economic Research Institute.

“As managing a hotel requires a huge investment, it is hard for SMEs to finance such a venture. As such, large conglomerates naturally step in.”

Korean Air is looking into building a luxury hanok, or guesthouse, inspired by traditional Korean-style lodgings, in Songhyun-dong, central Seoul. This would be situated opposite Gyeongbok Palace, one of the city’s major landmarks.

The airline operator purchased the land in 2008 but has seen its plan stalled due to a local law banning hotels within a 200-meter radius of schools. However, the company has been seeking ways to get the regulation lifted.

“The hotel could help form a cultural belt in the area to host guests of the state or iconic celebrities, giving them a top-quality and unique accommodation experience in Korea,” said Park Hyun-jung, an assistant manager of Korean Air’s communications team.

Meanwhile, Mirae Asset Investment Management plans to build a number of high-end hotels in central Seoul, including in Yongsan and Jung Districts. Although it hasn’t provided details of the construction plan, it is known to be chasing high-end luxury lodgings.

“We expect luxury hotels will see less fluctuation in terms of occupancy rate regardless of the state of the economy,” said Lim Myeong-jae, a manager of Mirae Asset Investment Management’s communication team. “Luxury brands tend to see steady sales even in times of economic crisis.”

Other conglomerates are vying to own top hotels without building one from scratch. Hyundai Group was designated as a preferred negotiating partner in January to take over Banyan Tree Club and Spa Seoul, a local unit of Singapore’s luxury hotel chain that opened in Jangchung-dong, central Seoul, in 2007.

Hotel management companies including Marriott International are also expanding their local branches. A top-tier JW Marriott is currently being built in the Dongdaemun area to meet the growing influx of tourists in central Seoul, and is set to open later this year.

Other renowned international hotel chains including Four Seasons, Shangri-La and Mandarin Oriental are also rumored to have been monitoring the local hotel landscape to see if there is room for expansion.

This comes in response to burgeoning demand for luxury hotel brands in the capital, said Seong Yeon-seong, director of Korea Hotel Association.

It also accords with the capital’s need to accommodate more top-rated hotels for VIPs attending international events such as the recent Nuclear Security Summit. Seoul hosted 201 such conventions in 2010, making it the most popular destination in Asia and the fifth in the world, according to the Korea Tourism Organization. Moreover, almost 600,000 foreigners visited Korea for such events that year, creating demand for high-end hotels.

“For safety and convenience, such as avoiding annoying language barriers, businessmen tend to look for high-end hotels,” said Seong of the KHA.

Indicating why others are keenly probing the market, Banyan Tree claims to rarely have rooms available on weekends, while Grand Intercontinental Seoul Parnas says it boasts occupancy rates of around 95 percent when it hosts conventions.

The Westin Chosun was built in Seoul in 1914, becoming the first five-star hotel in the country. This was followed by the Grand Ambassador Seoul and Sheraton Grande Walkerhill Hotel in the 1950s and ‘60s.

However, luxury hotels only started to become popular in the 1970s, with key players such as the Lotte and Shilla hotels establishing themselves. Seoul’s hosting of the Summer Olympics in 1988, the first major international event in the country, also gave the industry a major boost.

“This provided the momentum for chaebol to jump into the hotel business in the first place, as they wanted to host their foreign guests [during the Games],” said Kim Tae-yeon at the Grand Intercontinental Seoul Parnas.

But with more business hotels planned in Seoul and major cities, some are concerned about the sustainability of luxury hotel’s operations.

“Rooms at high-end hotels are in high demand because there are not enough business hotels in Seoul,” said Son Yun-kyung, an analyst at Kiwoom Securities. “But the two need to differentiate their target demographics to maintain their performance in the future.”

By Lee Sun-min [summerlee@joongang.co.kr]