Posh hostels edge into mainstream hotel sector

Martha Elwell Martha Elwell Uploaded 15 January 2018

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Thailand: A new report indicates the growing importance of poshtels in Southeast Asia’s mainstream budget hotel sector

Posh hostels are being embraced by millennials and older explorers who are increasingly abandoning traditional properties.

According to consulting group C9 Hotelworks' newly released Hostel Market Update 2018, with 1,766 international standard hostels in the region with over 63,000 beds, year-on-year growth last year grew by around 32%.

With growing demand in the sector there are no signs of deceleration and investment is being embraced by a growing number of hospitality groups and institutional investors.

C9's managing director Bill Barnett said: "In days past hostels typically sat in the sub-budget accommodation tier but with the recent evolution of properties now becoming hybrid hotels with a mix of private rooms, it's an entirely new ballgame. Our metric for hostels is average daily rate per bed (ADRB) versus the traditional hotel focus on average daily rate (ADR) per room. What is clear in our research is that in a growing number of cases the investment returns of these hybrid properties are superior to budget hotels in the same market. This is of particular interest to developers who are motivated by real estate return efficiency."

While there some movement towards consolidation, with mainstream players acquiring or developing their own brands, C9's research indicates that 87% of current supply remains independent.

Barnett adds: "Growth in resort destinations is far exceeding urban locations. Rising real estate values are clearly at play here but on a broader basis many investors view the strong recurring cash flow position, with lower investment than hotels as temping. What will be interesting is how effective budget and economy hotel chains adapt to the competition, and will they eventually have a moment of clarity on how hybrids reflect a marked departure in consumer travel patterns. Based on hotel groups stunningly slow reaction to OTA's and Airbnb, I'd say hybrids look to be one of the more interesting accommodation tiers in the next few years."

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