SEOUL, Jan. 6 (Korea Bizwire) – A series of new business hotels have popped up or are set to open in Seoul to attract budget-conscious travelers, but their rapid expansion raises concerns over tighter competition and margins, industry officials said Wednesday.
Local and global hotel chains have been building mid-range hotels or renovating existing facilities in the bustling downtown areas and near tourist attractions in the capital to target a growing number of travelers.
Many of the hotels have sprung up in Myeongdong, a downtown shopping mecca, over the past year, and more are set to open later this year to fill the niche demand between five-star hotels and cheap guest houses.
Budget hotels offer small rooms at inexpensive rates ranging from $100-300, about one-third the price of standard rooms offered by brand suites. Some feature stylish rooms with various amenities for fashion-savvy younger clients.
Lotte Hotel Co., a unit under Korean retail giant Lotte Group, has stepped up its mid-scale brand to boost stagnant sales from its luxury hotel business.
It opened its seventh Lotte City Hotel in Myeongdong on Wednesday for business travelers, and plans to launch a new brand called “L7″ targeting female customers in the shopping strip next week.
“There certainly are demands for business hotels with less frills, so we will make efforts to focus on the sector to make it the main growth driver in the coming years,” Hong Sung-joon, Lotte City Hotel’s chief manager, said. “Competition is expected to get even tougher when new hotels open, but we set sights on the long-term prospects.”
Shilla Hotel Co., the hotel affiliate of South Korea’s top conglomerate Samsung Group, opened two business hotels, called Shilla Stay, in Seoul last year, and is set to launch another later this year.
Its latest business hotel is located in Gwanghwamun, a city center surrounded by ancient palaces, government offices and company headquarters.
“We are trying to expand mid-tier business hotels as there were not enough options between luxury hotels and cheap accommodation facilities,” Ju Na-eul, a public relations official at Hotel Shilla, said.
Hana Tour, the nation’s No. 1 tour agent, has expanded its mid-range hotel business to link with its package tour programs. A new business hotel is slated to open in Myeongdong in May.
Global hotel chains have also arrived in the local market.
The Louvre Hotels Group, the second-largest European hotel group, has joined hands with a local partner, Seoul M Hotel, to open Golden Tulip M Hotel in Myeongdong later this month.
As the French firm is owned by Shanghai Jin Jiang International Hotels, the four-star boutique hotel has already drawn Chinese travelers during the pre-opening period in December.
“These days, people tend to spend less money in accommodations and spend more for shopping and other activities,” said a manager for Landmark C&D, a real estate investment company in charge of the new hotel.
Industry experts contribute the influx of business hotels to a growing number of individual travelers, who prefer to stay downtown with easy transportation access.
According to the Korea Culture & Tourism Institute, seven out of 10 foreign visitors to South Korea in 2014 were individual travelers, with the ratio of group travelers steadily decreasing over the past years.
The trend is expected to continue as tourism officials are encouraging more budget hotels to attract foreign visitors.
In 2012, the Ministry of Culture, Sports and Tourism implemented a temporary law aimed at easing regulations on the construction of new hotels for three years. The ministry recently extended the rule for another year to allow 16 investors to proceed with the hotel projects, which would add 1,048 rooms.
“We will confirm detailed regulations as soon as possible to allow waiting investors to proceed with their (hotel) projects in time,” Culture Minister Kim Jong-deok said on Monday.
The wider options for affordable hotels are good news for budget-conscious travelers, but not everyone’s happy.
Hotel operators worry that the supply glut may lead to self-harming competition from rate discounts in the face of burgeoning alternative lodging facilities in the already crowded area.
While Middle East Respiratory Syndrome (MERS) took a heavy toll on the tourism industry last year, they say uncertainties surrounding the Chinese economy and other emerging economies could weigh down the sentiment this year as well.
“If you look deeper into the hotel industry, the situation is not so favorable. It means that it will take longer for hotels built based on demand during good times to get a return on their investment,” said Sung Yeong-sung, an official at Korea Hotel Association.
”When new hotels open one after another, they will have to figure out how to draw customers with competitive prices to make ends meet.”