Business hotels are hot new sector

Industry

Published: 09 Dec. 2012, 19:43

Business hotels are hot new sector

Left: A triple room at Nine Tree, the business hotel chain of Intercontinental Hotel, which opened on Dec. 1 in Myeong-dong, central Seoul. Right: The Lotte City Hotel Gimpo Airport is a budget hotel belonging to Lotte Hotel, which currently operates business hotels in Gimpo, Gyeonggi, and Mapo District, western Seoul. Provided by the companies

Four big five-star hotels are going to duke it out in the budget hotel market.

Shinsegae Group affiliate Westin Chosun hotel recently announced it will operate a business hotel near Seoul Station, central Seoul, while Shilla Hotel will build a business hotel in Gangnam District, southern Seoul.

Lotte Hotel is already running a business hotel, the Lotte City Hotel Mapo in Mapo District, northwestern Seoul, and the Intercontinental Hotel, an affiliate of GS Group, has opened the Nine Tree in Myeong-dong, the place in Seoul most visited by foreign tourists.

In several metropolitan areas, the development of low-priced business hotels is in full swing with the customer base expanding from white-collar salaried workers to foreign tourists.

Office building owners are getting into the business along with wealthy individuals. Foreign hotel chains such as the Ritz Carlton and smaller hotels like the Ambassador Hotel are interested.

Japanese budget chains Toyoko Inn and Dormy Inn are expanding their businesses in Busan, and the country’s largest travel agency, Hanatour, has recently opened a business hotel, the Center Mark, in Gwanhun-dong, Jongno District, central Seoul.

SK Networks is considering opening business hotels on the site of some gas stations.

The main reason is an influx of tourists and a lack of hotel rooms.

According to the Korea Tourism Organization, the demand for metropolitan hotels last year was 36,000 rooms, while the supply was a mere 28,000.

Since 2009, the number of inbound tourists has increased by 10 percent every year, but accommodations grew by 3 to 4 percent a year.

“In the era of 10 million foreign tourists, booking a hotel room in Seoul is like getting blood from a stone, and even during the off season, 90 percent of accommodations are booked,” said a Hanatour official.

Another cause is the high profitability of business hotels.

In a generally lousy real estate market, office space earns an average of less than 4 percent in profit a year.

But the rate of return for business hotels amounts to 8 to 10 percent.

“Foreign travelers with tight budget prefer budget hotels, and we expect that the industry will be reshaped,” said Suh Sung-min, CEO of Euijong, a hotel management company.

The government is supporting the industry by easing up on the floor-area ratio for budget hotels for tourists.

Nevertheless, there are some challenges in the business.

According to overseas real estate investment consultant CBRE, the average room rate of a domestic business hotel is $185, the third-most-expensive in the world after Hong Kong and Singapore.

In order to lower the room rate and attract more customers, hotels should reduce operating expenses. In case of the French budget hotel Ibis, its front desk staff does double duty taking reservations and answering phone calls.

There is also the need to make your hotel distinct.

Japan’s Grace Lee Hotel offers room service delivered by waitresses so female guests don’t have to put on makeup. The U.S.’ Holiday Inn provides free meals to children under age 13.

By Kim Jung-yoon [kjy@joongang.co.kr]