Investing in Hostels: How to Make a Profit on Budget Accommodation

Moscow, Russian Federation, November 11, 2015 (Newswire.com) - Hostels are increasingly popular around the world: they are cheap for tourists, profitable for owners and nearly always in the city centre. For investors, they have above-average yields, high demand, great locations and excellent occupancy rates.

Key figures:

·         6–8% average yields

·         80% occupancy rates

·         high demand, little supply

Low prices keep the rooms full: demand for hostels is high due to low accommodation prices and lack of competition in the budget accommodation segment, which also kept these businesses afloat during the 2008 recession. Annual yields depend on the location and quality of the accommodation. For example, a hostel in Barcelona city centre costs about €1M and comes with average 6% yields and 80% occupancy.

The emergence of the “poshtel”, a boutique hostel that targets a more sophisticated audience. Guests can book separate rooms (there are even penthouse suites) and have access to luxury amenities like swimming pools, gyms, cinemas and car rental services. Kim Whitaker, co-owner/founder of poshtel Once in Cape Town, reported a steady 23% profit margin despite occupancy rates varying from 32% to 80%, according to Fin24.com.

High-end hostels like Wombat’s, who operates six establishments in four countries, had 1,900 beds in total by 2014. Leading European hostel operator A&O, owned by Oliver Winter and Michael Kluge, have 22 hostels and 14,000 beds, according to HVS. The scalable success of these businesses hinges on central property in popular European cities, above-average quality of accommodation, high occupancy and scalable business practices.

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