Hostels ready to return

Hostel and hybrid operators are looking forward to reopening their businesses, having had an arguably even harder pandemic than hotels. 

With covid social distancing restrictions preventing the operation of shared bedrooms, many have had to mothball parts of their accommodation for a year, in addition to halts for shorter term national enforced closures. The hit to revenues has required renegotiation of finances, and forced a look to new markets.  

Queensgate, owner of the Generator hostel brand with 19 hostels in 17 cities, has been forced to seek additional capital. In early March, Queensgate announced it had agreed a refinancing of the business, affecting around EUR500m of capital from banks HSBC, Société Générale and Aareal Bank. The company has also drawn in a further EUR100m of additional funds, provided by Apollo Global Management.  

Aside from Generator, Queensgate also owns the Grange hotel business in London, and has recently won consent to redevelop the Holiday Inn hotel in Kensington, a project worth potentially GBP1bn. In 2019, it paid USD400m for the Freehand Hotels business in the US, aiming to take the Generator brand across the Atlantic.  

Jason Kow, chief executive of Queensgate, said he was “proud to have completed the restructure of the largest multi-jurisdictional financings during the covid pandemic to support one of the most exciting asset-backed hospitality platforms on the street.” 

“With the millennial and generation Z customer base, we are confident of a rapid and resilient recovery once travel restrictions are lifted.” 

Ivo Kolev, partner at Apollo, said: “We are pleased to have worked with Generator’s sponsor, creditors and management team to ensure an appropriate capital base addressing the operational and earnings dislocation of the current covid-19 pandemic and look forward to working with the company as it goes through this challenging operating environment.” 

At UK listed hostel operator Safestay, the company reopened several properties during summer 2020, trading above expectations, before being obliged to close once more. The company secured UK and German government-supported loans, and chairman Larry Lipman said negotiations with landlords had helped reduce overheads during closure periods, leaving the business stable.  

In March, Safestay completed the planned EUR0.9m sale of its Barcelona Sea hostel, the smallest of its three properties in the city. The funds were used to pay the final installment due on its much larger 351 bed hostel there, acquired in 2018.  

Lipman said he expects the business to pick up once more from June. “In the last 10 days, we are experiencing pick-up – we’re on the cusp of emerging.” Once travel restarts, he said, “I think we sit favourably – our demographic is more resilient. And our business is really nimble – we can open up in one week.”  

Lipman said the company is already actively looking for new sites, and will be keen to work with landlords on a turnover rent model. “There’s always room to do deals, you just have to look a little harder.” He added that while there are no current plans to tap shareholders for funds, that remains an option, should an attractive proposition present itself.  

At hybrid operator Meininger, chief commercial officer Doros Theodorou said the group had used the quiet periods to improve booking systems, and launch a new CRM tool.  

The brand enjoyed strong staycation trading, he said: “Last summer we were quite surprised,” with occupancy at 80% in Berlin, as the sites benefitted from staycation activity. Meininger picked up more long stay business, helped by sites already having shared kitchens in the properties. “In Lyon, for example, there were students who wanted to stay with us for the week.” While an addition to business, longer stays have been at lower rates. With social distancing a concern, the decision was taken not to sell beds in dormitories until the pandemic is in retreat.  

“Corporate is an area where we’ve seen much more opportunity.” Meininger has also supported pandemic-driven activities, accommodating Medecins sans Frontieres at its Brussels hotel, and providing blood donation space in Berlin.   

Theorodou expects to see domestic demand start to build from May, with international arrivals beginning in June to July. “In September, we expect to start seeing our group business return.”  

29 hotels, five to open this year out of a pipeline of 14 properties: Bordeaux, Marseilles, Zurich, Geneva, Innsbruck. He is already exploring two potential rebrands to add to the pipeline.  

Meininger’s model is based on leased properties, from a lot of different landlords, and Theodorou said “They have all been accommodating. At the end of the day, they want us to survive, so they can survive. Through all of this, we’ve talked more, relationships have improved.”  

At hostel operator a&o, CEO Oliver Winter said annual revenues fell from EUR160m to EUR60m, as the business faced enforced closures and a collapse in demand – apart from a busy summer that saw occupancy in August 2020 above levels for 2019, albeit at lower room rates.   

The company also successfully chased opportunities in new business sectors, including construction workers and long stay students: “We hope they will stick with us”, said Winter. And working with local authorities, a&o opened 5,000 beds for the homeless, agreeing a deal that included post-stay redecorations.  

For a&o, around 50% of guests are school students, and to gauge likely demand, Winter said the company surveyed 2,000 teachers, discovering: “There’s an intense desire to have real travel.” And their biggest concern was a surprise, being around cancellation fees: “That’s easy to solve. Our hope is that from September, the schools will return.” 

HA Perspective [by Chris Bown]: These larger hostel operators have had plenty of challenges, but there is already clear evidence that the pandemic will lead to further consolidation in the sector. One executive said he has already been offered the keys of some properties, and others are actively planning takeovers and rebrands.  

All are pinning their hopes on the relaxation of social distancing rules and the waning of the pandemic, to help get the younger generations hostelling again. It will come, but how soon?  

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