Hostels: The Hot New Market

By Jackson Thilenius Principal, Retail Design Collaborative | December 30, 2018

With the rise of the sharing economy and the exponentially expanding competitive set within the hostel sector, the hospitality industry has been going through a number of dramatic shifts over the last few years. Brands like Airbnb and Uber, in particular, have revolutionized the way we travel, and continue to influence and inspire the development of new peer-to-peer platforms.

The Influence of AirBnB

Born from the simple plan to make a few bucks to pay rent, Airbnb has become a global phenomenon. With hotel rooms in San Francisco at a premium due to a large design conference in town, founders Joe Gebbia and Brian Chesky decided to turn their loft into a bed and breakfast that could cater to the young professionals seeking an alternative for overnight accommodations. The concept of providing "the basics" at a discounted price turned Airbnb into an industry giant worth in excess of $25 billion. With over four million listings in more than 190 countries, Airbnb's influence and relevance go far beyond that of most traditional hotel brands. Shockingly, this is not a new idea. My grandmother used to tell me stories about how traveling preachers in the 1800s would be provided accommodations on sleeping porches as they passed through rural towns. And youth hostels have been doing it since the early 1900s. It's not surprising then, that the growth of the hostel market space is primed for the millennial mindset of capturing value, and trading perceived luxury for experience.

Amenities, such as private phone booths, provide some much-needed privacy in an otherwise communal environment.

The Power of the Millennial Traveler

Following suit, parent hotel companies have been chasing this evolution by creating new lifestyle sub-brands and boutique experiences by the dozens. They have been scrambling for ways to reach this massive audience of travelers seeking authentic, localized experiences. According to Deloitte's "2018 Travel and Hospitality Industry Outlook," travel and tourism are one of the world's fastest-growing sectors, with bookings that hit close to $1.6 trillion in 2017. Millennials make up the bulk of these bookings and are very vocal about the brands they support, their needs, and how they travel as experience seekers. Larger hotel brands have had to learn how to adapt to this elusive traveler. Where creativity and innovation were previously watered down to appeal to the masses, this approach is no longer helping these brands maximize their profit. Brands must continue to invent services that cater to the discerning millennial audience and find ways to capture authenticity at every turn.

Hostels: Bridging the Gap

Hostels, on the other hand, have helped bridge the gap between Airbnbs and hotels. Hostels focus on a co-living/co-experiential environment like hotels and are community-based like Airbnbs. This combination is what drives their growing success. Most hostels now offer the option for private rooms and feature communal activities intended to connect travelers as well as link them more deeply to the communities in which they are staying. Hostelworld.com reports that private rooms and designer hostels are now becoming the standard (9 in 10 hostels now have private rooms), replacing the dormitory hostel image of the past.

With only about two percent of the hostels in the world being branded, the opportunity to be inventive and unique in this space is unlimited. Most hostels are locally owned and feature minimalistic design which compliments the authentic characteristics millennials are seeking. Hostelworld's "The Global Hostel Marketplace 2014-2018" has cited that 85 percent of millennial hostel travelers took an international trip in the past 12 months - compared to just 33 percent of all U.S. leisure travelers. Due to an increase in bookings, hostels are now beginning to elevate their offerings in terms of design and amenities with things like free WiFi, onsite food and beverage, daily cleaning services, social events, bicycle rentals, libraries, and media centers.

However, with hostels being known for budget accommodations, what is the outlook for ROI as they increase spending on amenities and overhead? Time will tell. One thing is certain, the science behind balancing investment monies with return is not lost on the savvy hostelier.

The millennial mindset in terms of traveling values affordable accommodations with a few key amenities.

Hostels = Community

I believe the key to a hostel's success is the community interaction it embraces, and how its services are a reflection of the culture embedded within the local area. Hostelworld also reports that hostel travelers are the social butterflies of the travel world, and as a result, the majority of U.S. hostel travelers (72 percent) are solo travelers who seek these social connections.

While for some, traveling solo and staying with strangers sounds like a recipe for disaster, there's no question that hostels must also balance the security aspects with an open door policy and community interface. Hostel owners certainly understand this and are being proactive in their approach to security. Added measures now include increased camera monitoring, diverse locker storage, emergency call buttons, and gender-specific accommodations. Travelers should always book through secure hostel booking sites, research the area, and choose quality hostels based on their most recent reviews.

"Poshtels"

Another new and popular type of a hostel that we are seeing on the rise is the "poshtel". These concept hostels are in response to the growing trend of Millennial travelers on a budget, but seeking a slightly more elevated guest experience that maintains the fundamental aspects of hostel accommodations. Poshtels take the style and comfort of boutique hotels and combine it with the price and community aspect of hostels. Popular "poshtels" such as The Wallyard in Berlin, Germany, and Soul Kitchen, in St. Petersburg, Russia, are changing the landscape for the entire industry. With the popularity and complexity of these concept hostels, it's becoming increasingly difficult to determine if the hotel world is influenced by hostels, or if it's the other way around.