This is the first in a series of articles on Korea’s hospitality industry. The second will appear next week. ― Ed.


Korean tourism is booming, with Chinese visitors flooding the streets of Seoul, lavish department stores and sightseeing spots.

But whether the Chinese influx has been a boon to the hotel business depends on who you ask.

While mid- and low-rated hotels rejoice at the surging demand, luxury hotels in Seoul are struggling to fill their rooms. 

“Four- to five-star hotels have been suffering a decline in room occupancy, following the drop in Japanese tourists,” said Kim Jang-won of the Tourism Accommodation Improvement Team of the Korea Tourism Organization.

“On the contrary, cheap motel rooms are selling well, thanks to Chinese tourists,” he added.

The contrast stems from a supply-demand mismatch as the local hospitality industry fails to adjust to the huge shift in tourist demographics from Japanese to the Chinese, and their differing accommodation preferences. 


Left out in the cold

It’s been a couple of years since the luxury hotels have been grappling with a slowdown.

Their average occupancy rate, which hovered at over 90 percent until 2012, fell to 71.4 percent by the end of 2014. Not surprisingly, the room rates have been spiraling downward.

This twin decline in occupancy and room rates coincides with a fall in Japanese arrivals to Korea.

Japanese visitors, who for many years made up the largest group of foreign tourists in Korea, were overtaken by Chinese travelers in 2013.

A weaker yen and soured relations between Korea and Japan over a string of territorial and historical issues are cited as the main reasons for the decline in Japanese visits. 

In 2012, half of the high-end Lotte Hotel’s guests were Japanese, but the number fell to about 20 percent last year.

Chinese guests, although they are growing in number, are not picking up the slack. Their share of the hotel’s total guests was about 20 percent last year.

“Chinese tourists don’t have a high demand for luxury accommodation. … They tend to demonstrate their wealth through shopping. They are not frugal in spending money on gifts for their neighbors, but have never been big spenders on accommodation,” said a staff member at Lotte Hotel.

Insiders say a large portion of Chinese tourists arrive here on cheap packaged tours that allow them to skimp on accommodation and food, but splurge on shopping. 


A supply-demand mismatch

Overall, the room supply in Seoul has been growing and will continue to do so, as China continues to drive Korea’s tourism boom.

Foreign arrivals rose 16.6 percent on-year in 2014, thanks to a more-than 40 percent increase in the number of Chinese tourists.

The number of hotel properties in the city jumped by 65 percent to 217 last year from 131 in 2010, according to the Seoul Metropolitan Government.

In particular, the number of low budget hotels with room rates less than 100,000 won ($91) per night increased greatly, as demand from Chinese and independent travelers grew.

In 2014 alone, Seoul added 71 new one- to three-star hotels.

The emergence of various types of, and more affordably priced, lodgings in Seoul is also adding to luxury hotels’ woes.

More foreign visitors have chosen to stay at motels, guest houses, residences, and relatives’ and friends’ houses. A motel room costs on average about 50,000 won per night.

The number of travelers choosing hotels fell to 65 percent in 2013 from about 78 percent in 2012.

On top of this, an easing of local regulations is fueling the construction of new hotels.

According to the city, 54 new hotels, with their combined rooms totaling 7,888, are slated for completion this year throughout Seoul. Many of them are business hotels owned by major luxury hotel chains, with their room rates expected to range between 100,000 won to the mid-200,000 won per night.

Keum Ki-yong, a researcher at the Seoul Institute said Korea needs to adopt a flexible, demand-based approach to hotel supplies in order to fully capitalize on the current tourism boom.

“Hotel regulations should be re-directed to induce an increase in the supply of the mid-to-low priced rooms where the demand is growing,” he said.

Rep. Jeong Jin-hoo of the minor opposition Justice Party says that hotel rooms would be in oversupply by 2016 if all new accommodations are built as scheduled.

If the ongoing hotel constructions are completed by 2016, Seoul will have a total of 52,093 rooms, more than what the government predicts the city needs to accommodate foreign tourists.

“The hotel development policy should keep in mind the shifting tourism trends,” said Jeong.

By Lee Woo-young (wylee@heraldcorp.com)