Economics of guesthouses

Three guesthouses clustered together in a residential area near Hongdae, in Seoul. An increasing number of facilities for visitors are opening in the area due to Hongik University Station’s location on the airport railroad and the trendy restaurants, cafes and bars in the district. / Korea Times photo by Kim Bo-eun

By Kim Bo-eun

Last December, Ko Hyun-ju quit her job at a travel agency in pursuit of a new job. Born and raised on Jeju Island, she had always been interested in the accommodation business. But it was not until several of her former colleagues left their workplace to open guesthouses that she decided to pursue her dream and follow suit. It would also be a business she could run for a lifetime, without having to retire, the 43-year-old said.

The decision would not have been possible without the increasing number of tourists visiting the country. According to the Korea Tourism Organization, 1.02 million tourists visited the nation in March, an 11 percent increase from a year earlier. Last year, the number of tourists reached 10 million for the first time.

However, there is still not enough accommodation to cater to the visitors. The Ministry of Culture, Sports and Tourism said last year that by 2015 it would boost the number of hotel rooms by 38,000 and the number of rooms at other accommodation facilities by 8,000. In response, a growing number of people are starting up accommodation facilities.

A dormitory-style room in Roi House, a guesthouse in Hongdae. The rates for a room accommodating five people are 25,000 won per person per night. / Courtesy of Roi House

In addition, at the end of 2011 a new clause related to city accommodation facilities for foreign tourists was created. It states that apartments or houses of up to 230 square meters can be utilized as guesthouses as long as they are registered. This has facilitated the legal creation of guesthouses.

As a result, guesthouses, which had mainly been located in commercial districts such as the downtown shopping district Myeong-dong, have been popping up in residential areas such as Hongdae in recent years.

Ko opened her guesthouse, Roi House, in January. She selected Hongdae as its location primarily because of Hongdae Station on the airport railroad, which opened in 2011.

She also chose the Hongdae area because it is filled with trendy restaurants, coffee shops, bars and nightclubs.

The common area at Kimchee Guesthouse in Hongdae. Guesthouses which facilitate socializing with other guests make them an attractive choice for foreign tourists. / Korea Times photo by Kim Bo-eun

Ko built the building from scratch, solely for the purpose of opening a guesthouse. It has 10 rooms that accommodate up to 40 people. The room charge starts at 25,000 won per guest per night, for dormitory-style rooms with five beds.

Ko’s guesthouse opened just a few months ago, and it is already seeing a steady rise in guests. Since the first few months of the year are in the off season, Roi House has had a 60 percent vacancy rate, but even so, the rooms are full every weekend. According to Ko, an average of 400 to 500 tourists have been staying at Roi House every month.

Two Japanese tourists lodging there were heading out for dinner and Ko, speaking to them in Japanese, recommended some nearby restaurants.

“I believe hallyu is the beginning of a Korean tourism boom. The numbers will only keep increasing,” said Ko.

Other guesthouses in the area that have been running for some time are already filled with guests.

Cozzzy Guesthouse, which opened in October last year, had one room available for viewing, as the other seven were occupied.

“It’s a pretty good business — you start by investing a little on renovations, but you can make up to 10 times more than giving the rooms up for rent,” said Woo Seung-jee, who runs the guesthouse with her brother.

Contrary to what people may believe, she said, it is actually quite a stable business. You can work with travel agencies that offer package deals, which can provide a steady flow of guests.

“Although this time of year is not the peak season, we’ve been having a continuous stream of guests due to K-pop concerts,” said Woo. “Some of our guests were here for G-Dragon’s concert last weekend.”

The guests seemed to be happy as well.

“We found this place on the Internet. It looked clean, it had a good location and the price was cheap,” said 31-year-old Wang Lan Li, an office worker from Taiwan, who was visiting with two other friends. “I would come here again if I were to visit Korea another time.”

Due to the rising number of guesthouses in the same area, owners have had to come up with methods to attract more customers.

Family House has a van that provides free rides to places nearby, as well as airport pick-up and drop-off services at a reasonable price.

Unlike most guesthouses, which share kitchens and bathrooms, while the rooms only have beds, Family House consists of 10 studio apartments, so each room has a kitchen as well as a bathroom.

“Many of our guests come in family units, drawn by the features of the rooms,” said Jung Jin-seok, who runs the business. “A large number also stay for extended periods of up to one month.”

Although the rental cost of the building is quite high, the business is quite profitable, said Jung.

According to him, even last month, 70 to 80 percent of the rooms were full. “We have an increasing number of guests who revisit,” he said.

There are also guesthouse chains such as Kimchee Guesthouse, which has guesthouses in Hongdae, Dongdaemun, Myeong-dong and Seoul Station, which opened most recently.

The prices at Kimchee Guesthouse are among the cheapest, charging 15,000 won per night for a dormitory room with 10 beds. For budget travelers, not only are the rooms affordable, but because they accommodate multiple numbers of people, they facilitate conversations and socializing. This makes the guesthouse an attractive choice for foreign tourists.

“When I’m new to some place, I usually stay at a guesthouse to meet people,” said a 29-year-old American lodging at Kimchee Guesthouse.

“It’s my first visit to Korea, so when I saw this place online, I booked it. Last night the people at the guesthouse got together and watched a game — we had a great time,” he said.