The hostel and limited service sector is emerging as one of the hottest investment opportunities in hospitality, a new report has revealed.
Published this week by global hotel consultancy HVS, the study outlines how the cost of hotel accommodation in top visitor locations is making the hostel and limited service concept attractive in the property market.
In addition, flexibility of design and the ease with which small businesses can be set up mean that the sector is now providing a viable investment alternative to office space or other income-producing asset classes.
HVS's findings show that larger hotel companies are moving into the hostel and limited service space. For instance, new products, such as Hub by Premier Inn and Tune Hotels, are opening in properties that would previously be taken by independent hostels. This is forcing other operators to become more innovative.
In some cases, hostels are competing with the conventional hotel market.
Innovative brands such as Generator and Plus, with 12 and five hostels respectively in Europe, are active. Generator has secured an out-of-town resort site for its new Amsterdam property and Plus has won several awards for its Berlin property, which includes amenities such as an indoor swimming pool and secure parking.
"The vibrant hostel and limited service segment now presents the consumer with more options and the investment market with more considerations. As a result transaction activity is particularly healthy in this sector and we envisage this will continue," said report co-author Harry Douglass, associate at HVS.
Deals include Jin Jiang International Holdings' acquisition of Louvre Hotels - a substantial international hotel operator with a significant stable of limited-service hotel brands; Accor investing in additional hotels across Europe; and Goldman Sachs acquiring the Grove Travelodge portfolio in a joint venture for £500m. Meanwhile, Invesco has spent €60m on a 23% stake in Generator.
"The limited-service hotel sector is arguably now at its most vibrant because of intense competition and it remains a key investor focus. Operators are also being forced to be more innovative and there is considerable lateral movement into the select-service segment with ‘amenity-creep' occurring," said co-author Christof Bertschi, associate at HVS.
Other findings in the report show that hostels in London achieve slightly lower revpar rates of £60 compared with the £65 achieved in the capital's budget hotels.
The report, The Hostel and Budget Traveller Market in Europe - Gaining Momentum, was released to coincide with the inaugural Hostel & Budget Traveller Conference in London, 17-18 November. It can be downloaded here.