Banyan Tree Club & Spa Seoul

Millennium Seoul Hilton

A dozen five-star hotels have been put up for sale by owners who no longer find them as profitable as before amid keener competition.

Finding new owners, however, is not easy as the demand for top-class hotels, and thus their profits, are declining. 

Six five-star hotels are for sale in Seoul. They are the Conrad Seoul owned by AIG Group, Banyan Tree Club & Spa Seoul by Hyundai Group, Renaissance Seoul Hotel by Sambu Construction, Millennium Seoul Hilton by City Development Limited Hotel Korea (CDL Korea), and Grand InterContinental Seoul Parnas and InterContinental Seoul COEX by GS Engineering and Construction (E&C).

Considering there are 23 five-star hotels in Seoul, almost one in four of them are for sale.

The owners, mostly chaebol, are selling the properties because of the hotels’ falling profitability and the owner groups’ own financial difficulties.

CDL Korea is searching for potential buyers for the Millennium Seoul Hilton, which posted 11.3 billion won in operating profits in 2013, down from 20.6 billion won the year before.

Sambu has been talking with Igis Asset Management since last year to sell the Renaissance Seoul Hotel as it suffers from financial crunch. Hyundai Group and GS E&C also put up their respective hotels for auction amid liquidity shortages.

Outside of Seoul, a dozen top-class hotels are awaiting new owners as well, including the Sheraton Incheon owned by Daewoo E&C, Best Western Premier Incheon Airport Hotel by a Singapore-based fund, and Novotel Ambassador Daegu by a U.S.-based fund.

The selling, however, is not going smoothly.

AIG talked with Korea Investment & Credit Capital Corp. (CXC) to sell the Conrad Seoul for 440 billion won since the latter half of last year, but the deal was cancelled in February after CXC failed to secure enough funds.

Sambu and Igis’ talks have been halted. For the Sheraton Incheon, potential bidders offered a lower price than Daewoo wanted, and no bidding talks are ongoing for now.

For the “unpopularity” of five-star hotels in the property market, a hotel industry source said chaebol do not want to own a hotel anymore.

“Conglomerates used to want to own luxury hotels as a symbol of their wealth. But the hotels’ profitability is decreasing, and as the conglomerates themselves have financial troubles, they are now trying to exchange the hotel business for liquidity,” he said on condition of anonymity.

High prices of the hotels also make the sales difficult, as the owners put them on sale for from hundreds of billions of won to some 1 trillion won.

“Still trying to recover from economic slump, companies, which are potential bidders, do not have enough funds to buy such expensive hotels,” he said.

Fiercer competition and decreasing demand for five-star hotels are another cause preventing active bidding.

According to the Korea Culture & Tourism Institute, the number of hotel rooms in Seoul rose from 23,644 in 2010 to 30,228 in 2013, and the number of hotels, from 138 to 192.

The number will increase further in the next three to four years, as the government has given permission for dozens of new hotels in the last few years following criticism that Seoul was short of hotels at peak tour seasons while the number of foreign tourists grows.

However, hotel industry experts say even though the number of total tourists is growing, the ratio of room use at five-star hotels is decreasing while that at lower-level, cheaper-priced business hotels is rising.

“The demand for five-star hotels mostly comes from Japanese travelers. But the number of them plunged since 2012 when the two countries had conflict over the Dokdo issue,” researcher Kwon Tae-il at the institute said.

“Instead, Chinese travelers now account for almost half of total inbound travelers. And most of them are group tourists who use mid-priced hotels. So, the mushrooming number of five-star hotels will not meet their needs,” he said.

 rahnita@koreatimes.co.kr