Goldman Sachs Bets on Seoul Hotels as Scarcity Drives 1 Trillion Won Investment [Real Estate AtoZ]

‘Commercial Real Estate Outlook’ Report
1.0897 Trillion Won in Transactions in Q1?Q3
Same Number of Deals as Last Year
More Value-Oriented 3- and 4-Star Hotel Transactions
Goldman Sachs Acquires Ambassador Seoul
Investments Target Areas Pop

Over 1 trillion won has poured into the Seoul hotel market. Including last year, more than 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 surge in foreign tourists. With hotel room shortages expected to continue next year, there are forecasts that the investment boom could intensify even further.

According to the "2026 Commercial Real Estate Outlook" report released on December 16 by global real estate consulting firm Cushman & Wakefield, there were seven major hotel transactions in Seoul worth more than 10 billion won each in the first to third quarters of this year, with a total transaction value of 1.0897 trillion won. The number of transactions was the same as in the same period last year. The total transaction volume decreased slightly from 1.338 trillion won.

Major Players Like Goldman Sachs Snap Up Cost-Effective 3- and 4-Star Hotels

This year, the increase in transactions involving cost-effective 3- and 4-star hotels pushed the total transaction value above 1 trillion won. Last year, high-value deals involving large 5-star hotels such as Conrad Hotel Seoul drove up the overall volume.

Notably, Goldman Sachs entered the market this year. In July, it partnered with JB Asset Management to acquire Mercure Ambassador Seoul Hongdae (270 rooms) for 262 billion won. This 4-star hotel is located in the Hongdae commercial district, which is popular with foreign tourists. The lower floors of the building house stores such as Musinsa Standard. Attracting retailers that draw in consumers is a classic example of "mixed-asset investment" that enhances customer appeal.

Domestic REITs management firms also scrambled to secure prime assets. KB Asset Management purchased 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 analyzed that the reason funds are concentrating on 3- and 4-star hotels is because "5-star hotels have high asset prices and significant operational risks, whereas mid-tier hotels have relatively low barriers to entry and stable demand from tourists." It added, "Areas such as Hongdae, Seoul Station, and Mapo have high floating populations of foreign tourists, making it easier to maintain high occupancy rates."

In fact, as supply shortages intensified after the end of the pandemic, the occupancy rate for 3- and 4-star hotels in Seoul had already reached nearly 80% as of 2023. The average daily rate (ADR) also surged by about 25% compared to the previous year.

Next Year, Demand Will Outpace Supply... 'Room Crisis' Spurs Office Conversion Boom

The shortage of hotels in Seoul is cited as a key driver of the money move. Due to the "Special Act on Expanding Tourist Accommodation Facilities" implemented from 2012 to 2016, the number of hotel rooms surged by more than 13% annually from 2015 to 2017. Since 2023, however, the number has started to decline as properties were demolished or closed during the COVID-19 pandemic. Last year, the number of rooms stood at around 42,000, maintaining a similar level to the previous year. With few buildings available for conversion into hotels or land for new construction, the number of rooms is likely to remain at current levels.

In contrast, demand is soaring. As of last year, the annual number of guest nights by domestic and foreign tourists reached about 34 million, up 23% from before the pandemic (2018). Not only are more tourists visiting from Asia, but arrivals from the United States and Europe are also increasing, and the average length of stay is rising. The report projects that next year, the supply-demand ratio will exceed 100.8%, leading to a full-fledged shortage of hotel rooms.

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