A&O Hostels has bought its first property in Spain, to build a 750-bed hostel in Barcelona, due to open in 2021.
Generator Hostels also announced a new site, in the US, as the hostel sector continued to flourish after the recent spate of M&A bought it to investors’ attention.
At A&O, the Berlin-based budget group which was acquired by TPG Real Estate last year, purchased the 7,900 square-metre complex in Barcelona’s Hospitalet district and will begin renovation in 2020.
Henri Wilmes, A&O’s chief investment officer, said: “With this third deal in 2018, we have managed to achieve our long-desired entry into the Spanish market – one of Europe’s key markets.”
The company, which currently has 34 buildings across six countries, announced it was also working on expanding into Madrid, Seville, Malaga, Lisbon and Porto.
The announcement came shortly after A&O announced that it was due to open its first hotel in Budapest next year. With around 108 rooms and 412 beds, “this building will be a very exciting addition to our portfolio,” said Wilmes.
He added: “We are delighted to have found such a property in one of the most sought-after hotel markets in Europe, after such an intensive search. With this acquisition in Budapest, we are expanding our leading position in the European hostel market.”
This year has seen A&O Hostels move to build on its growth. In August it appointed Liam Doyle to the newly-created position of COO, joining the company from Selina, the platform which is gaining a reputation for its innovative sales techniques. Prior to his role as COO at Selina, he spent close to three years at Clink Hostels.
Doyle will develop uniform standards of operation across all 33 of the group’s hostels, acting as a link between individual hostels and the company’s headquarters in Berlin. He will also be responsible for overseeing new hostels during their pre-opening phases. A&O is currently growing at a rate of two new hostels a year.
Oliver Winter, CEO of A&O, said: “With Liam, we have found a budget travel expert with excellent international connections. His long-standing experience in the sector and the enjoyment he gets from working in multi-national teams made him the perfect choice for A&O in view of our big expansion plans.”
Fellow Europe-based hostel operator Safestay announced that it had acquired its eighth European property, currently operating as Hotel Opera in central Brussels, for EUR1.6m. The property was leasehold with a remaining term of five years and an option to extend to 2032.
Larry Lipman, chairman, Safestay, said: “Hotel Opera has been a good hotel but we believe we can make it into an excellent hostel. The building and the central location combine to make it ideal to attract some of the tens of thousands of visitors who come to Brussels each month.
“Given that it is an operating hotel, conversion will be quick and many of the existing operating team will continue under the Safestay brand. We expect the transaction to be immediately earnings enhancing.
“We are executing on our ambitious roll out plan and we look forward to completing further similar deals in other prime city locations.”
As A&O and Safestay were expanding in Europe, Generator Hostels, which was acquired by Queensgate Investments last year, bought a property in Washington DC for its second US opening.
Queensgate Investments paid USD54.1m for nine-floor, 147-room block. The asset will continue to be run under a Marriott franchise with incumbent manager Crestline during 2018 and 2019, prior to conversion to the Generator brand.
Jonathan Millet, head of acquisitions, Queensgate Investments, said: “The acquisition of the Washington D.C. asset marks the next step in Queensgate’s U.S. ambitions as we look to acquire both additional hotel assets to expand Generator as well as working on the acquisition of new standalone real estate platforms of significant scale.”
The deal came one month after Generator opened a property in Miami.
Hybrid apartment provider Zoku has also revealed new sites in Copenhagen and Vienna. Both sites will open in 2020, adding more than 290 units to the portfolio, following the brand’s debut in Amsterdam in 2015.
The Copenhagen site, with 160 apartments comes after Zoku won a competition for a site run by the city council. In Vienna, Zoku will be part of the new Prater Glacis project being developed by IG Immobilien.
As hostels continue to attract investor interest, JLL identified the rise of the ‘poshtel’, which it said typically combined a design-led ambiance with small, often shared sleeping areas and a focus on innovative communal spaces.
“This reimagined hostel meets the needs of the modern traveller,” said Graham Craggs, managing director, EMEA Hotels, JLL. “It offers flexibility on the room product, and, often, organised events that encourage guests to meet and mingle. A number of major brands are now looking to move into this space. The so-called poshtel not only taps into some of the spending power at the younger end of the market, but is also, to some extent, a response to the influence of Airbnb and the challenges that disruptive business has had on the hotel industry.”
For developers and hoteliers, poshtels offer a number of advantages. “This type of property is generally cheaper to build and operate, and therefore has higher profitability. What’s more, they may go into buildings and locations that are not suitable for traditional hotels. The concept has a lot of merits across the spectrum of guest types. And from a development perspective, the metrics make sense,” said Craggs.
HA Perspective [by Katherine Doggrell]: Here at Hotel Analyst we have been banging the drum for hostels over the past few years and, in the spirit of disclosure, staying in a few to make the point that you can emerge uncreased for a conference after a night in a bunk bed for less than GBP50 in a capital city.
The delight for developers and investors is that you can pile ‘em high and sell ‘em cheap and in unconventional sites. And, as those other alternatives of extended stay and serviced apartments have found, the rise of Airbnb has been quite the boon when it comes to encouraging guests to try new things – and demand decent pricing in central location.
What makes the recent deals interesting, other than illustrating the general spawning of the branded hostel sector as it starts to meet its early promise, is the Washington acquisition for Generator. There has long been the suspicion that hotels and hostels would start to compete on the same turf and now we see a Courtyard by Marriott going over to the bunkbed side. No great wonder that recent weeks have seen Hilton launch its own hostel-influenced brand in Motto.
Additional comment [by Andrew Sangster]: Hotel Alternatives are on the rise and there are two lenses to look through to understand what is happening.
The first lens is that of consumers. Alternatives to traditional hotel accommodation are now more readily available than they have ever been. The most visible presence is online where many of the main booking channels for accommodation now offer more non-hotel properties than they do conventional hotels.
The two biggest western OTAs, Booking.com and Expedia, now boast about their array of non-hotel offers outnumbering traditional hotels. At Booking, for example, it has listings for 400,000 hotels and for 1.2 million non-hotels. While hotels remain a vital part of the business, the OTAs are increasingly focused on alternatives too.
And a key driver of the success of alternatives has been the growth of so-called sharing platforms, of which Airbnb is the biggest. A look at these websites shows clearly that they are selling not an accommodation service but are in the business of providing experiences, which just happen to align with selling you a night in an apartment or even a treehouse.
Alongside the consumer lens, are investors. And their perspective is somewhat different. While they too see the new markets emerging, they are particularly excited by the higher yields that have been available in the newer market segments offering buildings with beds.
I use the historic tense because increasingly, the gap between hotels and other types of real estate featuring accommodation is closing. In some cases it has closed. An example being student accommodation which is now very much an institutional asset class and has three dedicated real estate investment trusts listed on UK stock exchanges.
The investor lens is more wide-angle, encompassing not just short-let accommodation but everything from self-storage to healthcare.
But both lenses are focused on the opportunity afforded by the new emerging asset classes and the way in which previously siloed segments are now blending together.
What is particularly exciting for hospitality professionals is how the skills and knowledge accrued while running or investing in hotels are now a vital component in the trends driving nearly all real estate asset classes.
Co-living, for example, is essentially as hospitality variant of traditional residential. Co-living concepts typically offer a short-term let, communal living space and an array of shared services. A hotel worker or investor will feel right at home.
Similarly, co-working is all about offer flexibility and facilities in place of the fixed, long-term leases that offices have historically been let on. Again, put a hospitality professional into this environment and she or he is going to feel right at home.
It is no wonder that so many of the newest and most creative concepts being established today have an entrepreneur at the helm with a background in hospitality.