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European Budget Brands Face New Competition

Jul 2, 2013


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

The report outlines the growing popularity of hostels and the movement by larger operators into this segment, who are now offering hostels alongside more traditional hotels. With the recent takeover of Meininger by Cox & Kingsan acquisition designed to create a leading hotel group across the hotel and hostel market⎯⎯the trend has grown.

“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,” comments the report’s 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.”

The market has also seen rapid growth across Europe, Africa, Asia, and South America and is increasingly run by branded operators such as Generator, Meininger, and St Christopher’s Inns. However, the report shows that 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 percent of Generator’s new hostels in Berlin Mitte are comprised of double rooms with en-suite facilities.

View a gallery of Generator's Barcelona, Copenhagen, and Hamburg hostels here
.

As this sub-sector of the wider market matures, HVS expects to see a higher proportion of leasehold models of varying levels of security. 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.





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