LONDON-Hotel groups doing business in both the hostel and hotel sectors are likely to present now investment opportunities and are likely to outshine budget hotels, according to a new report from global hotel consultancy HVS London.
The report, The Sharing Market: Commercial Hostels in Europe, depicts the growing popularity of hostels and a movement by larger operators into this segment. The trend is exemplified by the recent takeover of Meininger by Cox & Kings, an acquisition designed to build the foundation of a leading group across the hotel and hostel market.
“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. Improved hostel facilities mean they are now appealing beyond their student customer base, attracting young families as well as corporate travelers,” comments report author Harry Douglass, senior associate with HVS. 
The market has also seen rapid growth across Europe, Africa, Asia and South America, largely run by local companies, although increasingly by branded operators such as Generator, Meininger and St Christopher’s Inns
However, the report says local planning and safety restrictions may prevent the development of full-fledged commercial hostels, and steer operators to configure a property more like a hotel. Approximately 50% of Generator’s new hostel in Berlin Mitte comprises double rooms with in-suite bathrooms. 
As this sub-sector of the wider market matures, HVS 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. 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.
“From our analysis of a number of European destinations, it is clear that this market is set to enjoy rapid growth and continued interest from major companies keen to diversify their operational exposure,” concludes Douglass.