HOSTELS: The Dawn of a Revolutionary Asset Class

For most people over the age of 30 the words "hostel" and "five-star" make for an unlikely combination. Yet it appears that the value proposition of the hostel has undergone a radical change over the past decade...

For most people over the age of 30 the words "hostel" and "five-star" make for an unlikely combination. Yet it appears that the value proposition of the hostel has undergone a radical change over the past decade, as savvy private property investment groups, identifying the potential and demand for top quality cheap accommodation in city centre locations, particularly in these tough economic times, have been entering into joint venture with branded operators and converting previously empty buildings such as department stores or flagging hotels and pubs into thriving business propositions.  So much so in fact, that the revival of  the former  black sheep of the hospitality trade  was hailed by Property Week last year as  "the birth of a revolutionary asset class for the property industry".  

Hostels No Longer Hostile

A review of the offers that abound on the Internet reveals that hostels are no longer the hostile crash-pads they once were, with a "you get what you pay for" policy – namely not much more than a dubiously clean bed for the night in dodgy dormitories crammed with strangers and obligatory communal bathrooms - that sent all but the hardiest backpacker running for shelter to the nearest hotel.

Today, hostels are emerging as havens for travellers on a budget of all ages, where safety, cleanliness and other previously unheard of options such as private rooms and en-suite bathrooms, irrespective of room size, are now part of the norm.  The age-discriminating "Youth" word has been dropped altogether by the emerging new breed of hostel franchises as they seek to attract a broader spectrum of city visitor; from the mid-week business traveller to tour and student groups, to venue seekers for all types of private celebrations or the lone traveller, regardless of age.

Hotels with an Overriding Social Factor

Emerging private hostel brands boast their own unique look and feel and are stylish, modern and clean.  Incorporating chill-out lounges, free Wi-Fi access, internet cafes, games and movie rooms, great emphasis is placed on the strong social factor at play in a hostel as opposed to a budget hotel where privacy and anonymity prevail. They aim to offer a complete travel experience; an opportunity to discover the surrounding area, often teaming up with tour operators to offer specially tailored city tours for their guests and a chance to make new friends in a new city by offering in-house entertainment facilities in the form of a late-night bar or traditional pub or restaurant that is attached to the premises.

A Viable Accommodation Alternative for the Business Sector

One such franchise, the award-winning Smart City Hostels Edinburgh certainly redefines the traditional hostel experience.   This 132 en-suite room hostel, kitted out with oversized single beds, and offering complimentary bed linen, towels and shampoo, spacious showers, and lockable storage lockers offers amazing value for money. Its in-house bar and restaurant "Bar 50" is actively promoted as a private events venue and has dining facilities for 200 making it an ideal place to host all kinds of celebrations. As is the mode in other successful Pan-European city hostel franchises it also offers conference and meeting facilities thus wooing the business sector away from the more traditional hotel experience while making huge savings for the company coffers.   

A Profitable Business and Investment Proposition

According to property investment experts, the recession has inadvertently provided a boost to the hostel sector, as travellers of all age groups are on the lookout for the best value for money deals in prime city centre locations when it comes to booking accommodation.  With many buildings lying empty in city centres and some existing hotels and bars struggling to attract a consistent clientele, their conversion into a new generation branded hostel is proving to be a shrewd business move.

In an interview with (August 2011), CEO of the Journeys branded hostel franchise Stephen Holland, claimed that if a study of Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA) return against capital invested were to be made, hostels would win hands down.  He cites how a struggling pub saw a three-fold increase in turnover in the space of a year after undergoing a conversion into one of their branded hostels.

With the increased number of tourists from emerging economies such as India, Brazil and China now joining the tourist scene visiting the UK and the rest of Europe, investment groups in partnership with successful hostel franchises, are upping the ante in anticipation of assured demand, with ambitious portfolio expansion plans not only throughout the UK but in major tourist attraction cities throughout Europe.

The word is out on the street – if you have a disused property or flagging business suitable for conversion in a city centre location you could be sitting on a potential pot of gold and if you are an investor, this previously unlikely and revolutionary new asset class success story seems destined to run and run.

- Thursday 26 July 2012

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