EXCLUSIVE Demand outstrips supply in booming European hostel sector - Savills

The hostel market has been one of the fastest-growing in Europe but, despite recent expansion, demand still far outstrips supply, according to a Savills report that will be published next week.

The rise in the number of youth travellers in the age bracket 16-34 from overseas and from other European countries has led to record demand for budget accommodation, while supply remains constrained.

The report, which focuses on the ten most visited cities in Europe (Amsterdam, Barcelona, Berlin, Copenhagen, Dublin, Edinburgh, London, Paris, Rome and Stockholm), concludes that Berlin is the most well-supplied city, while London, Paris and Rome are the least well-supplied.

Market leader
Germany is streets ahead of the rest of Europe, largely due to the presence of A&O and Meininger, two of Europe’s largest branded hostel operators. Berlin has a supply of 11.2 beds per 1,000 youth travellers. This is far higher than other cities, but it is still down from 13.1 beds in 2013 as stock expansion has been outpaced by rising visitor numbers.

Barcelona and Dublin have similar visitor numbers to Berlin but they only offer 5.3 and 2.2 beds per 1,000 travellers respectively. Savills highlights London and Paris as the two cities with the most potential, as they are increasingly popular destinations but at present have a poor supply. Paris has 1.4 beds per 1,000 youth travellers, while London has 2.8 beds – compared to 7.6 hotel rooms per 1,000 general visitors with very low vacancy rates. Rome, Copenhagen and Stockholm also have a supply under 2.4 per 1,000 visitors and therefore offer great opportunities for future growth.

Local experience
‘The value appeal in the hostel sector has been a driving force behind its expansion since the financial crisis in 2007 and 2008, but it is not just about cost,’ says Ross Connelly, associate director in the hotel valuation team at Savills. ‘The rise of Airbnb has shown that some travellers are increasingly looking for a different and more local experience than that offered by traditional branded hotels.’

One trend that is emerging is the rise of ‘boutique hostels’ that offer good design and a pleasant atmosphere, as young travellers become more sophisticated. The so-called ‘flashpacker’ generation of Millennials has replaced the undemanding backpackers of old and now want superfast broadband, good art on the walls and excellent coffee.

‘Some boutique hostels have tapped into this trend by creating a shared and a local experience that comes across in the general offer, design and onsite amenities,’ says Connelly.

The UK
In the UK, new companies like Generator and Safestay have capitalised on this demand for affordable luxury, while traditional hotel groups are looking at entering this space. ‘'It has long been an unloved, fragmented market which is still hugely undersupplied,’ says Larry Lipman, chairman of Safestay. ‘The core customer is the backpacker, but they have become quality-conscious and sophisticated.’

Safestay’s two London hostels, for example, are in a Georgian listed building and in a restored Jacobean mansion, and combine period exteriors with contemporary interiors and large shared sitting-rooms and wi-fi areas. Generator hostels, from London to Dublin, are well-known for their good locations and ‘urban chic’ stylish interiors.

Looking ahead, says Lipman, ‘the real growth is coming from broadening the appeal of the market beyond young travellers,’ says Lipman. ‘We get many families now who choose a 4 or 5-bed room with an ensuite. My prediction is that the market will segment, with low-quality hostels catering for traditional backpackers and new boutique hostels on a higher tier catering for new customer profiles.’

Safestay, which at present has hostels in London, York and Edinburgh, is now planning to expand into Europe: ‘We are looking at up to six new locations in London and then to Paris and Milan, which have great potential.’ Generator, which already has a presence in ten European cities, plans to open at least two new hostels in Rome and Stockholm in 2016.