Hostels are hot property, and it's time for investors to buy in

Forget the image of budget travellers and run-down neighbourhoods: hostels are the new superstars of the travel scene. With many travellers from all backgrounds now seeking authentic experiences and local knowledge, the market is evolving as it grows. The annual HOSCAR Awards, timed to sync with the Oscar nominations, are full of glitz and glamour, and even divas like Mariah Carey are getting involved. But what should investors be looking for if they want to join the party?

Hamburg - The numbers don’t lie – now is the time to invest in hostels with Engel & Voelkers.

Identify rising stars

Engel & Völkers Hotel Consulting has spent years tracking trends in the hotel sector, and our 2018 Hotel Market Report shows continued growth in the European market. Visitors increased by 8% in 2017, although increases in RevPAR (revenue per average room) were particularly strong in Eastern (+10.5%) and Southern Europe (+9.5%).

Outside of Europe, however, Colombia could be the rising star hostel investors are looking for. In the 2018 HOSCARs, it was flagged as being relatively new to the list of countries offering hostels and immediately became one of the most booked destinations. Bookings have surged 46% year-on-year, and the capital of Bogota was listed among the top cities.

Find an untapped market

Such gaps in the market are the perfect opportunity for savvy property buyers seeking alternative investments, and they exist in a number of forms. The rise in solo travellers visiting adventurous locations, for example, has created demand for authentic travel experiences that deliver local knowledge, support and a feeling of security and safety. 

It’s no coincidence that big players like Safestay, which provides boutique hostels for families, business and solo travellers, reported a 60% rise in turnover last year. Taking this model outside of Europe to countries in Africa and South America, especially to one of those places identified as rising stars, could prove a lucrative opportunity for property investors.

Spot investment potential

You don’t necessarily need to find a fresh market to successfully invest in the growing hostel market, however. You can also identify cities and spaces where traditional players are struggling to take advantage of growth.

Hamburg is a great example. ADRs (average daily rates) were up 5.3% in 2017, RevPAR was up 6% and overnight stays up 4.1%. But the best news for hostel investors is that big developers are finding opportunities scarce, which leaves gaps for inventive buyers to turn unique properties into smaller-scale ‘hybrid’ hostels. These combine the authenticity and friendly feel of a hostel with the style and comfort of a hotel. They’re increasingly popular with investors, and could prove a smart way to soak up excess demand in cities like Hamburg.

Finalise your vision

Part of the challenge of taking up these opportunities is having the vision to turn a unique property into a boutique hostel. Doing so requires a distinct skillset in several areas. The first is finding those special properties opportunities that deliver on both size, style and location. Keeping an eye on urban planning trends in your chosen area, as well as local market trends, can really help here. 

Once you have an opportunity in place, consider how best to maximise your investment. That means considering issues such as construction or conversion costs, as well as the interior design features and customer service extras that will make your hostel stand out.

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