With the number of hotel rooms in Seoul running far short of the explosive demand from Chinese and Japanese tourists flooding into the city, most downtown hotels have enjoyed a boom for the past five years.

Seeing the constant growth in tourists, the nation’s largest conglomerates are rushing to build no-frills business hotels in the city center, putting existing hotels run by smaller companies on pins and needles.

Lotte Hotel and GS Group’s Parnas Hotel have already entered the fray, while plans by Samsung’s Shilla Hotel, Shinsegae’s Westin Chosun Hotel, SK Networks and Aekyung Group are in the pipeline.

“Sales have increased at most hotels in the city center for the past five years. Our annual average room occupancy rate was 90.8 percent last year, which means our rooms were mostly full throughout the year,” said Hwang Myung-cheol, sales promotion manager at Koreana Hotel in Gwanghwamun.

“This is why the big companies are bullish about building business hotels, and with their name value, they will obviously deal a blow to our business.”

To brace for a tough fight against goliaths, Koreana Hotel is stepping up its efforts to strengthen relationships with corporate clients by remodeling the hotel, upgrading rooms for guests and offering guest transport services, according to Hwang.

Hotel Skypark, which runs four hotels in Myeong-dong, shares the sentiment.

“The conglomerates have stronger marketing power and brand names, so it worries us,” said Woo Hye-yeon, spokesperson for Skypark.

“That is why we offer a special beauty service for female customers through collaboration with famous cosmetics companies in addition to ‘smart’ rooms where guests can open doors or change TV channels using their smartphones.”

The national trade association of hotels is aware of the unease felt by its smaller members, but has not had a chance to discuss it with the big shots.

“Apart from the annual general meeting of our board directors, the Fair Trade Commission tends to see any kind of meeting amongst our members as an attempt to fix prices, so we have been careful about meetings since last year,” said Suh Yeon-seong, director of the Korea Hotel Association.

“But both large hotels and smaller ones are our members, and conglomerates’ entry into the budget hotel business based on their capital strength should be seen from a market economy’s point of view.”

Sales are better at business hotels than at five-star, or super deluxe, hotels here as most of the demand comes from Chinese and Japanese tourists looking for no-frills accommodation within their budget and tastes, according to Suh.

Seoul has 26,000 hotel rooms ― fewer than 100 other cities around the world, such as Bangkok with 94,000. Hence, the Seoul City government welcomes all new hotel projects with open arms.

The conglomerates’ envisioned business or boutique hotels typically offer guestrooms at rates under 200,000 won per night.

Parnas Hotel ― 70 percent owned by GS Engineering and Construction, and the rest by the Korea International Trade Association ― opened its first business hotel Nine Tree Myeongdong in the central shopping district in December.

Parnas, which runs the five-star Grand InterContinental Seoul Parnas and InterContinental Seoul COEX in southeastern district of Samseong-dong, plans to build more Nine Tree hotels, although it is yet to decide how many or where.

Lotte and Shilla have both chosen business hotels as their new growth engine.

Having enjoyed brisk sales at Lotte City Hotel Mapo and Lotte City Hotel Gimpo Airport, Lotte is building two more in downtown Seoul by 2015 ― one in Janggyo and another in Myeong-dong.

Shilla plans to open five business hotels within Seoul under the new brand “Shilla Stay,” one of which will be located within 50 meters of Lotte City Hotel Mapo.

Westin Chosun is also set to open a business hotel near Seoul Station in 2014.

SK Networks, which runs Sheraton Grand Walkerhill and W Seoul Walkerhill, plans to build business hotels on unprofitable SK gas station sites, while a smaller conglomerate Ajou is building one named Hotel Seokyo near Hongdae.

By Kim So-hyun (sophie@heraldcorp.com)