Improved hostels threaten budget brands in Europe: HVS

Hotel groups straddling both the hostel and hotel markets are likely to emerge as new investment opportunities and become viable alternatives to budget hotels, according to a report from HVS London.

The trend is typified by the recent takeover of Meininger by Cox & Kings, HVS London noted.

“UK hostels are now competing head on with limited-service lifestyle brands such as Motel One, Tune and CitizenM, and we are likely to see more of this across Europe as the segment grows further,” said report author Harry Douglass, senior associate with HVS. “Improved hostel facilities mean they are now appealing beyond their student customer base, attracting young families as well as corporate travelers.”

However, according to the report, local planning and safety restrictions may prevent the development of fully-fledged commercial hostels, forcing operators to configure a property more like a hotel. Approximately 50% of Generator’s new hostel in Berlin Mitte, for example, comprises double rooms with en suite facilities.

As this sub-sector of the wider market matures, HVS said it expects to see a higher proportion of leasehold models of varying levels of security as groups look to penetrate new markets more rapidly. No formal performance benchmarking service for the hostel sector currently exists, which will challenge banks and other investors to become better informed about its performance and future prospects.

“To be competitive, hostels need to keep up with modern trends and so require dynamic hands-on management,” Douglass said. “But with good growth prospects for group travel, and as the only form of serviced dormitory offer in a cost-conscious world, they are in a strong position.”