More than 1 trillion won in investment capital has flowed into Seoul's hotel market. When combined with last year, over 1 trillion won has been invested for two consecutive years. This is the result of a "money move" by foreign capital seeking to benefit from the influx of international tourists. With a shortage of hotel rooms expected to continue next year, forecasts suggest that the investment boom could become even more intense.

According to the "2026 Commercial Real Estate Outlook" report by global real estate consulting firm Cushman & Wakefield released on December 16, there were seven major hotel transactions in Seoul with asset values exceeding 10 billion won during the first to third quarters of this year, totaling 1.0897 trillion won. The number of deals is the same as the same period last year. The total transaction volume, however, decreased slightly from 1.338 trillion won.

This year, the total transaction amount exceeded 1 trillion won as deals for practical 3- and 4-star hotels increased. Last year, the overall scale was boosted by high-value transactions of large 5-star hotels, such as Conrad Hotel Seoul.

Notably, Goldman Sachs entered the market this year. In July, it partnered with JB Asset Management to acquire the Mercure Ambassador Seoul Hongdae (270 rooms) for 262 billion won. This 4-star hotel is located in the Hongdae district, a hotspot for international tourists. The lower floors of the building house retailers such as Musinsa Standard. This is a textbook example of "mixed-asset investment," which attracts consumers by bringing in popular retail tenants to increase customer draw.

Domestic REITs management companies were also busy securing prime properties. KB Asset Management purchased the Four Points by Sheraton Josun Seoul Station (342 rooms) from Macquarie Asset Management for 172 billion won. Shinhan REITs Management expanded its hotel portfolio by acquiring Shilla Stay Mapo (382 rooms) from Hana Alternative Asset Management for 143 billion won.

The report cited the following reasons for the inflow of capital into 3- and 4-star hotels: "While 5-star hotels have high asset prices and significant operational risks, mid-range hotels offer relatively lower entry barriers and stable tourist demand." It also noted, "Areas such as Hongdae, Seoul Station, and Mapo have large flows of international tourists, making it easier to maintain high occupancy rates."

In fact, as supply shortages worsened after the end of the pandemic, the occupancy rate for 3- and 4-star hotel rooms in Seoul approached 80% as of 2023. The average daily rate (ADR) also surged by around 25% compared to the previous year.

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The shortage of hotels in Seoul is cited as a key driver behind the "money move." The enforcement of the "Special Act for Expansion of Tourist Accommodation Facilities" from 2012 to 2016 led to an annual increase of over 13% in hotel room numbers between 2015 and 2017. However, from 2023 onward, the number of rooms has started to decline as more properties were demolished or operations were suspended during the COVID-19 pandemic. Last year, the number of rooms stood at about 42,000, maintaining a similar level as the previous year. With few buildings available for hotel conversion and little land for new construction, the number of rooms is likely to remain at current levels.

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In contrast, demand is surging. As of last year, the annual number of overnight stays by domestic and international tourists reached approximately 34 million days, a 23% increase compared to pre-pandemic levels in 2018. The average length of stay is also rising as more tourists visit not only from Asia but also from the United States and Europe. The report predicts that the supply-demand ratio will exceed 100.8% next year, signaling a full-fledged shortage of hotel rooms.

Industry experts predict that as it becomes increasingly difficult to reserve hotels during peak season, alternative accommodations such as guesthouses, residential lodgings, and motels may benefit as a result. Kim Su-gyeong, Head of Research at Cushman & Wakefield, said, "With new supply blocked, there will be more attempts to convert office or residential buildings into accommodation facilities," adding, "Active transactions of 3- and 4-star hotels in Seoul and participation from overseas investors are expected to continue next year."

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