Beyond Bunk Beds

Europe's hostel sector has transformed from budget accommodation into a robust investment opportunity, projected to reach €8.2 billion by 2029. These properties demonstrate remarkable resilience, outperforming traditional hotels in RevPAR recovery and occupancy rates during downturns. Key investment opportunities include urban renewal projects, hybrid hotel/hostel concepts, and tech-enabled operations, with market consolidation creating favourable conditions.

The European hostel market is projected to grow to €8.2 billion by 2029, with a compound annual growth rate (CAGR) of 6-8% from 2024 to 2029 (Grand View Research, 2024). This growth is linked to demographic shifts, including Millennials and Gen Z as most hostel guests, an increasing average age of backpackers, and the rise of "flashpackers" (budget-conscious travellers who seek hostel-style social experiences but prefer higher-quality accommodations and amenities). Operators respond by integrating co-working spaces, offering long-term stays, and curating enhanced social experiences.

Several key trends are contributing to the transformation of the hostel market. A major force behind this change is the rapidly evolving guest demand for higher quality, comfort, and social experiences at affordable prices. Whitebridge Ventures – led by CEO Mark Fenelon and backed by RoundShield LLP Partners – is responding to these significant shifting expectations with the expansion of its Kabannas hybrid hotel brand across Europe, focusing on the delivery of innovative room-bed solutions with social experiences at the core of the brand. Reflecting on recent industry shifts, Mark observes:
 

“Guests today are driving a fundamental transformation at the affordable end of the hospitality market. Their demand for higher quality, comfort, and richer social experiences together with rapidly increased room rates is shaping the rise of hybrid hotels as a new standard, prompting operators and investors to rethink what affordable accommodation can be.”

Mark Fenelon, CEO of Whitebridge Ventures

Other trends accelerating the market’s evolution include:

• Urban Redevelopment and Revenue Density: Conversion of underperforming office spaces into modern hostels unlocks new opportunities.

• Technology Integration: Digital solutions that are revolutionising the guest experience.
   

“Hostels excel as office conversion candidates in prime urban locations due to their high-density layouts. Their adaptability to specific building configurations generates up to 40% higher revenue density than standard hotels in city centres, making complex redevelopment projects financially viable where other hospitality concepts might struggle.”

Andrew Heath, Head of Operator Selection, UK and Ireland

JLL's observations emphasise the remarkable resilience of the hostel sector, which has been evident in its operational recovery over recent years. This strong market position is a result of streamlined operational models and improved technology-enabled services, which together lead to better profit margins across the sector.

Investors are increasingly interested in the hostel sector, with deals like Brookfield's recent acquisition of Generator Hostels highlighting the attractive returns available in this sector.

"Brookfield's acquisition of Generator Hostels for circa €775 million in 2025 alongside the recent sale of the A&O platform mark a significant turning point in the European hostel landscape, showing demand for scale in the sector and shifting hostels from a niche segment into a mainstream asset class. The volume and quality of capital seeking hostel investments have increased competition, with institutional investors driving larger and more sophisticated transactions."

Will Duffey, Head of EMEA Hotels & Hospitality Capital Markets

“Hostels offer an affordable and inherently social accommodation in an efficient real estate footprint. With Generator, we (Brookfield) see significant opportunity to further scale the business through acquisitions and management agreements as well as leveraging our operating sector expertise to enhance the business.”

Li Zhang, Senior Vice President at Brookfield Asset Management

This institutional interest follows a clear precedent. TPG Real Estate Partners' strategic repositioning of the A&O Hotels and Hostels platform during its ownership culminated in the circa €800 million sale to StepStone Group and Proprium Capital Partners in November 2023. The new owners have committed €500 million for expansion and modernisation by 2030, showcasing ongoing institutional confidence in the sector.

These significant transactions, both involving the acquisition of operating platforms along with real estate assets, demonstrate the hostel sector's evolution from a niche investment opportunity to a mainstream institutional asset class.

We provide an overview of the positioning of some of the most prominent European hostel platforms below:

London showcases the evolution of the hostel market, where professionally operated concepts are emerging. Key players include Generator Hostel London, Kabannas St Pancras, and Wombat's City Hostel.

The pipeline for London hostels is rapidly expanding, with a notable development of a 775-bed hostel on Dean Street. Another significant player is the Zedwell brand, which currently operates four locations in London with c. 1,100 rooms and is planning to radically transform the central London economy segment, offering an additional 2,000 pipeline of both pods and compact economy rooms across key London locations. Zedwell’s owner, Criterion, recently also soft-launched a 970-pod hostel concept in the former Body Worlds building on Piccadilly.

The impact of this significant supply increase on the sector’s operational performance remains to be seen. However, with most of the new entrants located in prime locations, they are expected to predominantly re-allocate demand away from older, independent mid-market hotels in secondary locations such as Paddington.

“Lenders are increasingly drawn to the rapidly professionalising hostel market in the UK and across Europe, recognising the potential for strong returns driven by technology integration and operational efficiencies. This segment drives high revenue density and bears the potential for lean cost structures, ultimately delivering attractive margins for operators and a compelling case for investors.”

Damon Pere, Head of Hotels & Long Income UK, Netherlands & Ireland, Operational Real Estate Value Risk & Advisory

The future of the hostel market looks promising, with opportunities in established cities across Europe, however, as with every emerging sector, challenges remain.

In Paris, owners are actively considering converting office buildings into hotels, with a focus on the significant obsolete stock in tech-constrained towers in Europe's largest business district, La Défense. However, regulatory challenges, such as restrictions on the share of windowless rooms, are a significant hurdle for the conversion of these buildings into standard hotel concepts. As a result, pod hostels are increasingly considered a potential solution to solve for this daylight planning constraint. Given the continued performance challenges in parts of the German hotel market, here conversion projects are mostly focused on turning dated hotels into serviced apartments, such as numa and limehome. However, examples of office conversion do exist, including the hotel-office-hotel conversion of the proposed Ruby in Berlin. While there have been some signs of interest from upmarket hostel players into the German market, similar to France, regulatory challenges around access to natural light remain. In Spain, Azora (who have recently expanded into Dublin and Brussels with their Latroupe brand), Room00, and Generator are the main hostel operators. However, at the moment focus remains on professionalising the Economy sector more generally, given current limited brand penetration.

In addition to regulatory challenges, barriers such as misconceptions on guest profiles, management professionalism, and product quality also remain across Europe.

To capitalise on the growing potential of the hostel market, investors and operators should:
 

• Prioritise investments in technology.

• Explore hybrid models and premium products.

• Balance professional concepts with guests’ needs for community. 

The European hostel market has established itself as a sophisticated investment opportunity. As the sector evolves to professional platforms, it offers operational resilience and strong yield potential.

Demographic changes, technological innovations, and new business models have established hostels as a dynamic asset class. The increasing transaction activity indicates growing institutional confidence in the sector's long-term potential.

For investors, the path forward particularly involves embracing technological innovation and pursuing strategic consolidation. With only 8% of the European hostel market controlled by the top five brands, there remains runway for platform investments and brand expansion. Additionally, the hostel sector's ability to transform urban spaces into community-focused environments positions it perfectly for the next evolution of hospitality real estate.