Are backpacker hostels the next hot topic for alternative investment?

The Savills Blog

Are backpacker hostels the next hot topic for alternative investment?

Whilst not as luxurious as a five star luxury hotel, backpacker hostels can be quite lucrative investments.

Most backpacker hotels provide limited ancillary services, resulting in lower staffing levels. Plus they would have lower levels of fit-out and maintenance costs, particularly in comparison to more luxurious accommodation. This results in a higher return margin and generally lower entry price point, which is attractive for investors seeking a yield driven return.

Backpacking, a trend on the rise?

Backpacking itself is a trend on the rise, with figures on youth travel rising internationally. In fact, the United Nations expects the number of ‘young people’ (under 26 years of age) travelling internationally to increase exponentially by 2020 to be just shy of 300 million international trips a year.

In addition, the definition of backpackers is changing too; it’s not just the youth that like to stay in hostels anymore. Depending on hostel brand and style, a variety of people from professionals to families also use their services.

Within Australia, according to the International Visitor Survey from Tourism Research Australia, a total 46.9 million nights for the year ending December 2014 was spent in backpacker style accommodation, representing a decrease of 3.9 percent on 2013. However, the percentage for national visitors staying in backpacker accommodation grew by 9.8 percent in the year ending March 2015.

An alternative to the alternative

The expected standard at most hostels is quite low, and they have never been conceived as high quality or attractive. However certain international hostels stand out in the crowd as they focus on higher standards, design and customer experience. Costs are still low but their point of difference draws the customers in. If you do plan on investing within this sector, consider planning the hostel to break the traditional mould and stand out in the crowd.

In addition, there has been a recent spate of investment activity which shows investors converting hostels to boarding houses catering for students. Boarding houses can be a good alternative to hostels as they avoid seasonal fluctuations and result in longer stay guests.

To learn more on the outlook and trends of the hotels industry, including alternative investments, view the latest Hotel Market 1H/2015.

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