International visitation shows signs of recovery

• As of YTD November 2022, approximately 2.7 million visitors came to South Korea, which represents a 203.2% y-o-y growth. While visitation from the top two source markets (Mainland China and Japan) remained subdued compared to historical levels, South Korea drew visits from more diverse source markets, notably from Southeast Asia and the Americas, fuelled by the growing popularity of Hallyu.
• Despite severe global inflation and growing geopolitical uncertainty, domestic demand remained resilient and continued to lead the recovery of the lodging sector. The pent-up demand for leisure experiences gave rise to the popularity of staycations, which led the KPI recovery of Luxury & Upper-Upscale hotels in Seoul and other leisure destinations in South Korea.

Room for more international and unique brands to enter

• The majority of hotel transactions in 2022 were sold for redevelopment or conversions, which signals subdued supply growth in the near term as many large hotels will be taken off the market. New openings in 2022 included 151-room Voco Gangnam, 196-room Hotel Naru MGallery, 405-room Le Meridien and Moxy Myeongdong, and 221-room Four Points by Sheraton Suwon.
• While a significant amount of new supply is scheduled to enter major leisure destinations in the form of condominium hotels and timeshare products, some openings are likely to be delayed due to rising interest rates.

Recovery led by pent-up leisure demand

• Benefitting from the pent-up domestic demand, revenue per available room (RevPAR) of Luxury & Upper-Upscale hotels fully recovered to 2019 levels with a 81.9% y-o-y increase to KRW 176,490. Midscale & Economy hotels also exhibited strong RevPAR recovery at 131.4% y-o-y growth, but 2022 average daily rate (ADR) remained at 53.8% of 2019 levels.
• Overall, 2022 hotel performance was largely driven by strong ADR growth. On the back of local staycations and leisure demand, ADR of the Luxury & Upper-Upscale segment has recovered to KRW 302,837, or approximately 128% of 2019 levels. Occupancy rate increased by 21.4 percentage points during the same period.

Outlook: Promising recovery despite geopolitical uncertainties

• Despite rising geopolitical tensions and the global economic slowdown, South Korea will likely be the largest benefactor of pent-up demand for leisure and business travel from Mainland China. While the near-term demand is likely to remain mostly domestic-led, the return of Mainland Chinese visitors is likely to fuel continued recovery in trading performance for 2023. 
• While South Korea was the second most transacted market in Asia Pacific with large hotel transactions, the majority of transactions in 2023 will for smaller hotels. The reduced activity from domestic investors, deteriorating residential market, and favorable currency exchange rate should present unique opportunities for international investors to explore value-add opportunities.