Hotel chains grow without building: management contracts fuel expansion

"We don't build. We don't buy. We just operate."

South Korea's hotel industry is expanding through management contracts — securing operating rights without owning or constructing the properties. The model lets hotel companies grow their brands and leverage operational expertise while avoiding the heavy upfront costs of building or buying real estate.

Hotel Lotte is leading the push through its operations subsidiary Lotte Hotel HM, according to industry sources Monday. The company has been managing L7 Gwangmyeong by Lotte Hotels in Gwangmyeong, Gyeonggi Province under a management contract since June. Starting in March next year, it will also take over operations of L7 Cheongnyangni by Lotte Hotels in Dongdaemun-gu, Seoul.

Hotel Lotte established Lotte Hotel HM in February to spearhead its management contract expansion. Under the arrangement, Hotel Lotte handles brand strategy and asset management for contracted properties, while Lotte Hotel HM takes charge of day-to-day operations — staffing, systems and marketing.

Overseas, Hotel Lotte already manages five properties under contract, including Lotte City Hotel Tashkent Palace in Uzbekistan and Lotte Hotel Yangon in Myanmar. Domestically, it began expanding its management contract portfolio with the opening of Lotte Hotels & Resorts Gimhae in 2024, and added L7 Chungjang by Lotte Hotels, Briv Gwangju by Lotte Hotels and L7 Gwangmyeong by Lotte Hotels this year.

Hotel Shilla became the first South Korean hotel operator to manage a property abroad when it took on Jinji Lake Shilla Hotel in Suzhou, China in 2006. It has since expanded domestic management contracts through its subsidiary Shilla HM — formerly Shilla Stay — established in 2013. Shilla Stay initially focused on lease-based operations before introducing the management contract model starting with its West Busan location in 2021, later extending to Yeosu, Jeonju and Jeju. Last July, it broadened its reach into the premium segment with the opening of Shilla Monogram in Gangneung.

Hotel Shilla is also rolling out management contract properties abroad. On Friday, it opened Shilla Monogram Hanoi West Lake in Hanoi, Vietnam. In February, it entered the Chinese market for the first time with Shilla Monogram Xi'an, and in April it opened Shilla Stay Yancheng in Yancheng, Jiangsu Province — the first overseas location for the Shilla Stay brand.

Joseon Hotels & Resorts, a Shinsegae Group affiliate, is pursuing a similar strategy. Last year it signed MOUs for hotel management contracts in Incheon's Cheongna district and Daejeon's Yuseong district, and plans to open five additional managed properties by 2030.

Parnas Hotel will open Inscape Yangyang by Parnas near Naksan Beach in Yangyang-gun, Gangwon Province under a management contract in December. The company has also been managing Nine Tree Premier Locauz Hotel Seoul Yongsan in Yongsan-gu, Seoul since 2023.

Under the management contract model, a hotel owner entrusts operations to an outside specialist. The owner gains access to an established brand, reservation and sales networks, revenue management and staffing expertise — without the burden of running the property. The operator, in turn, earns management fees and performance-based compensation without having to purchase or build real estate.

A surge in foreign tourist arrivals has also underpinned the trend. According to the Ministry of Culture, Sports and Tourism, about 17.11 million foreign tourists visited South Korea in the first nine months of this year, up 21.5 percent from the same period last year. If the pace continues, the full-year total is expected to surpass last year's record of about 18.94 million.

"The reason operators are expanding management contracts is that it minimizes investment risk while generating stable revenue backed by proven brand recognition and operational know-how," an industry official said. "In an uncertain market environment, it significantly reduces the financial burden and is well-suited to expanding a hotel chain."