Builders turn to budget hotels

Daelim, Hyundai Development forced to look for other sources of cash

By Lee Hyo-sik

A growing number of construction firms here have been looking for new sources of cash to cope with the prolonged sluggish domestic housing sector, following the global financial crisis in 2008.

Many large builders have shifted their focus beyond the nation’s borders, making an all-out effort to win as many orders as possible from the Middle East and other parts of the world. They have succeeded in securing substantial contracts for residential complexes and a wide range of industrial plants.

At home, several have found a new opportunity in the booming tourism sector to build budget hotels tailored to accommodate the surging number of Japanese, Chinese and other foreign tourists.

With Seoul alone lacking at least 15,000 rooms, building and operating budget hotels, which offer rooms that are usually more than 30 percent lower than premium hotels by providing only basic services, have become a lucrative business.

Daelim Industrial, one of the country’s largest builders, is constructing an 11-story business hotel in front of the National Assembly building in Yeouido. With 260 rooms, it will be completed by April 2014. The firm also plans to develop a budget hotel in downtown Seoul, offering a total of 430 rooms, scheduled to open in early 2015.

``The housing market here has been in a dire situation, while government spending for public infrastructure works has been on a downward curve,’’ said Daelim spokesman Chung Sung-ho. ``To cope with declining business at home, we have aggressively made inroads into foreign markets, securing many orders from overseas to construct industrial plants.’’

Chung then said the builder recently found a silver lining in the tourism sector. ``With many foreign visitors unable to find affordable accommodation, building and operating budget hotels has been and will be a good business. It is less risky in terms of financing and generates a stable cash flow.’’

Daelim’s tour unit, Ora Tour, will manage the two envisioned hotels.

``Ora Tour has built up extensive know-how on hospitality-related business from operating the Jeju Grand Hotel and Ora Country Club on Jeju Island. We will seek to secure appropriate sites across the capital to build more business hotels,’’ the spokesman said.

Mid-tier builder Booyoung will open a new budget hotel on Jeju Island in August 2013 to serve the surging number of Chinese tourists heading to the southern resort island. It already operates the Jeju Tourism Hotel and has acquired another unit at the Jeju International Convention Center which it will turn into a budget hotel.

Hyundai Development plans to open a premium business hotel in the southeastern port city of Busan early next year.

``We will open the Busan Hyatt Park in the first half of next year in Haeundae, a popular tourist destination, to accommodate both business and leisure travelers,’’ said Lee Dong-hoon, a spokesman for Hyundai Development. ``We will build and own the structure. But we will let multinational hotel operator Hyatt manage it just like the Hyatt Park Seoul.’’

Lee said the company will look for further sites in Seoul and other large cities to expand its Park Hyatt franchise. ``Korea is facing a severe shortage of hotel rooms as more foreign tourists come here. We would like to expand the Park Hyatt franchise.’’

According to the Korea Tourism Organization, 9.79 million foreign tourists came here in 2011, up 11.3 percent from 8.79 million the previous year. The figure is expected to exceed 10 million this year.

Currently, there are about 20,000 hotel rooms available in Seoul. The city recently unveiled a range of measures to help boost the number of hotel rooms to 51,000 in anticipation of 12 million inbound travelers annually.

Not only construction firms, but also local hotel franchises have entered the budget hotel sector to capitalize on the country’s tourism boom.

The Westin Chosun Hotel, affiliated with Shinsegae Group, plans to take over Migliore Department Store in Myeong-dong, a popular shopping district in Seoul, to transform it into a 17-story budget hotel.

Lotte Hotel plans to open two business hotels in Myeong-dong, offering a combined 700 rooms, while the Shilla Hotel, affiliated with Samsung Group, is also looking to enter the business hotel sector by developing one property in southern Seoul and another in Dongtan, Gyeonggi Province.