A Year-end 2015 Overview of the South Korean Market

By Horwath HTL on April 19, 2016

Horwath HTL and STR have combined to produce a year end report for the South Korean Hotel Market.

Overall, hotels in South Korea performed weaker in 2015 than in 2014. Occupancy was down by 11.9% and RevPAR (revenue per available room) declined 18.9%, based on year-end figures.

The outbreak of the Middle East Respiratory Syndrome Coronavirus (MERS) in South Korea and the declining strength of the Japanese Yen against the Korean Won, which affected tourist arrivals from Japan, led to an overall decline in demand. Japan is South Korea’s second largest contributor to hotel demand, so a decline in arrivals from that demographic makes a big impact. The MERS outbreak, however, was the main reason for South Korea’s weak hotel performance in 2015.

With the first signs of the outbreak at the end of May 2015, South Korea experienced a significant decline in international arrivals, which was evident in demand drops in June (-29.9%) and July (-23.0%) when compared with 2014. The outbreak scare caused occupancy to drop considerably from 70.8% in May 2015 to 48.4% in June 2015.

When it was announced that MERS was no longer a major threat by the end of July, occupancy levels started to pick up again in August. Followed by the strengthening of the Japanese Yen, hotels performed better in the second half of 2015 as peak holiday season and renewed confidence gradually pulled performance up during Q4. Year-over-year occupancy also increased in January 2016 (+0.6%).

The transient segment recovered quickly from the decline caused by MERS. This is reflected for January 2016, when transient business experienced renewed positive growth in occupancy (+2.5%) after an average decline of -12.4% in 2015.

The group segment, on the other hand, is still struggling. Year-end occupancy showed a 22.4% decline compared with 2014, and this trend has continued through January (-4.2%). According to STR analysts, a possible explanation is that the group segment is more cautious with health concerns due to insurance concerns. However, the data does indicate some signs of recovery.

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Horwath HTL horwathhtl@horwathhtl.com