Korean hotel investment activity forecast to pick up this year

This is particularly true for luxury hotels.

According to a Savills report, the Korean tourism industry witnessed a rebound in hotel market performance in 2023, especially for 4-5 star hotels, as pent-up travel demand during the pandemic was revitalised by the Korean Wave. 

Unlike offices and logistics which commit long-term leases with tenants, hotels primarily cover operating costs through increases in average daily rate (ADR), allowing them to mitigate inflation through flexible price management in response to market demand and operating costs. 

Here’s more from Savills:

Thus, despite the post-pandemic inflationary environment, aggressive increases in ADR have bolstered operational income, and assets located in key tourist destinations such as downtown Seoul, Haeundae in Busan, and Jeju Island have been perceived as stable long-term investments. 

In 2023, hotel investment reached approximately KRW1.0 trillion, marking a 55% decrease compared to the previous year. This decline was due to the prolonged market downturn, which deterred new investments and limited hotel purchases for redevelopment amidst rising construction and financing costs. 

However, investment activity is expected to pick up in 2024, particularly for luxury hotels, such as the 5-star Conrad Hotel and the 3-star Shilla Stay Mapo, both ongoing transactions as of February 2024. Furthermore, as the three leading hotel operators in Korea (The Shilla, Lotte, and The Chosun) all announced plans to expand their asset light strategy in 2024, the number of assets up for sale is likely to increase, leading to further declines in cap. rates for properties boasting competitive locations and facilities.