Institutional money is flowing into hostels by the millions. Also private investors have jumped on this trend in hospitality real estate investment. But why are hostels such popular hotel investment opportunities?

The Poshtel Trend

Over the last decade we have witnessed the rise of a new niche market in the hospitality industry. After the craze of boutique and design hotels, we are now in the the era of the Poshtels. This trend has crossed over into the hostel sector.

The backpacking do it yourself hostel product has gone hip with the times and reinvented itself. Basically, Postel stands for Posh Hotel. No longer is a hostel merely a BYO-toilet-paper lodging provider for the nomadic traveler. Hostels have turned into full-fledged hospitality concepts. It is a hip hybrid, offering shared bunk-bed dorms and cozy private rooms and family rooms.

The Poshtel trend originally started in Europe, but the are now popping up all over the globe. The good thing about this new trend is that, well, it’s on trend. Like all those Instagram-worthy new food spots, poshtels are more design-focused (and their restaurants tend to have locally-sourced ingredients.) At a Poshtel, you get everything you’d expect from cool boutique hotel for a bit cheaper. You can chill in an amenity-filled social setting filled with power outlets and artsy, modern decor. Without breaking the bank, you can enjoy wifi, nice beds and bathrooms, and things like a cool bar, a nice view, and maybe even a pool.

Millenials and Beyond

Of course the budget conscious millennial traveler has connected with this lodging concept. They don’t travel the way their parents did. For one thing, millennials aren’t looking for your standard issue hotel room. So logically Poshtels are extremely popular with this market segment. And not just because of budget prices. They just love the original experience and local ambience modern hostels offer.

At first you might think that poshtels would be popular with millennials only. But statistics show otherwise. According to MediaPost, Generator reported that 15-20% of the guests are older than 30, while European hostel chain Christopher Inns the percentage is 35-40%. 50% of the American members of Hosteling International USA (a nonprofit youth hostel operator) are over 25, and 10% are over 55.

Room with bunk bedsand two boys at Amistat Beach Hostel Barcelona

Amistat Beach Hostel Barcelona

How to Make Money with Low Rates

But with those low rates, won’t it be hard to make a sizeable amount of money? Well besides charging for lodging, they offer more to their clients. Accommodations isn’t the only item they’re selling. These hostels do not only rely on food and beverage sales from their bars and restaurants, but also on the sales of other merchandise, such as toiletries, apparel, and locks that guests can use to secure their belongings in shared rooms. They are very creative when it comes to upselling, and their target market appreciates the pay for what you use approach …

And as the concepts are well developed, prices in this area are increasing well. With our revenue management partner Xotels, we have seen tremendous upside in yield for youth hostels. Additionally due to the lay-out efficiency, the revenue per square meter is staggering if you compare it to traditional hotels.

Investors Follow the Trail

Millennials love hostels, and money follows whatever they love. By 2020, millennials as a group will pump $1.4 trillion into the economy, according to a report from Accenture. A part of that money will flow into the travel and hospitality industry.

But as you could read above, it is not just the millenials anymore who are staying at hostels. The Poshtel has gone mainstream, making it even more interest for investment of course.

With all the buzz in the media around the reinvented hostel concept, more and more investors are diving into this market. Global investment funds and institutional investors are expected to pump millions into hostels. This market is ready to go big …

It is predicted to be one of the biggest travel trends of the next decade.

Room with bunk beds at the Kaboom Hotel

Kaboom Hotel in Maastricht

The final word: Concepts of the Future

At Vojo we believe that the future in hospitality evolves around movements like the sharing-economy. The communal aspect of travel, offers opportunity to bundle authentic experiences and local interaction. We foresee a future for hybrid models combining concepts like co-working, co-living, co-travelling…

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Patrick Landman @ Vojo