Ramada Encore Jeju Seogwipo, one of Wyndham Hotel Group's franchises, started service on June 30, 2015. Image: Nevistas

High Demand for Mid-Range Hotels in South Korea Attracts US Investment


Wyndham Hotel Group (WHG), an American powerhouse in the mid-range hotel industry, recently decided to nearly double its presence in South Korea, after signing 14 franchise contracts in 2014. Adding 12 new contracts to its portfolio, WHG’s investment will include 17 Ramada hotels, six Days Inn hotels, and three Howard Johnson hotels due by 2018. In total, these new investments will create 7,550 new hotel rooms and account for 48% of all mid-range hotel rooms in Korea. This decision was based on WHG’s recent expansion in Southeast Asia and around the Pacific. The group also sees growing opportunity for the mid-range hotel industry in South Korea following considerable new investments there by Starwood Hotels and ibis.

When it comes to the accommodations business, consumers in South Korea have a smaller range of options compared to the US. A critical problem for the lodging industry in South Korea is the huge difference between luxury hotels and other facilities. According to the Korea Tourism Organization (KTO), 75.8% of visitors from overseas countries chose hotels for their accommodations in 2014. The remainder were divided, with 13.4% of tourists opting for motels, inns, youth hostels, and guest houses, 5.8% staying at relatives’ or friends’ houses, and the rest choosing accommodations like homestays and temple-stays. Within the “hotels” category, options are limited, with high-end and luxury accommodations dominating the sector. According to the Korean Hotel Association, the number of mid-level hotel rooms accounted for 20% of all accommodations in 2014. One of the main reasons many tourists nonetheless opted for high-end hotels instead of lower-cost options is due to poor services in other accommodations, especially in the widely-available motels. Some tourists reported staying in Korea’s distinctive motels only due to a lack of proper hotel rooms.

Wyndham’s new investments should excite American tourists. According to the KTO, the Americans were recorded as the third largest number (0.7 million people) of foreign entrants in 2014, reporting a 6.6% growth rate compared to the year before, and only behind China (5.5 million people) and Japan (2.2 million people) in total visitors to Korea. In addition, visitors from the US indicated lodging charges as the biggest part of their total expenditure. Surveys have suggested that more Americans would opt for cheaper hotels if options existed, so by bringing familiar brands with reasonable price tags to Korea, Wyndham and others are positioning themselves to take a substantial piece of the American tourism market there.

Minseong Baek is a Research Intern at the East-West Center in Washington and an Asan Washington Young Fellow at Asan Academy in Seoul.