The boss Safestay said it was only a matter of time until hoteliers exploring opportunities outside of their saturated markets jump on the hostel bandwagon, as the upmarket hostel owner revealed a rise in full-year revenues.
The Aim-listed company, which was founded by property veteran Larry Lipman five years ago with the aim of sprucing up the hostel market, said it swung to a pre-tax loss of £600,000 in 2015 from a profit of £100,000 in 2014 after overhauling its booking systems and launching two new sites.
Revenues, however, doubled to £4m from £1.9m last time, while earnings before interest, tax, depreciation and amortisation (ebitda) remained flat at £700,000.
Safestore said its Elephant and Castle hostel – located in the former Labour party headquarters at John Smith House – performed well in its first comparable year of trading. Occupancy increased to 78.6 per cent from 78.1 per cent in 2014 while the average bed rate was up by 5.7 per cent over the previous year.
Its York hostel, located inside a Grade I-listed building, improved occupancy 50.3 per cent.
In August last year, the company launched a hostel inside a Grade I-listed Jacobean mansion in London’s Holland Park after a hotly contested battle with other hostel operators for the leasehold.
It also launched in Edinburgh's Old Town in September after buying the 615-bed hostel last summer for £14.9m. Safestay also struck a deal to lease half of the rooms to the University of Edinburgh during term-time.
Lipman, a South African-born property entrepreneur who has co-founded a mini-empire of "Safe" companies including property investment firm Safeland and storage business Safestore, said the two new sites had boosted the number of beds in its portfolio from 560 to 1500 – putting it on track for further growth this year.
However explained that new hostel openings take on average three years to reach maturity, creating some "profit frustration" in the short term.
Speaking in the breakfast room at Safestay's leafy Holland Park hostel, Lipman said budget hotels were "turning into American-style motels" and stripping out more and more social amenities from their sites in a bid to cut costs.
"Airbnb is worse. You don't have a reception or anyone to ask for help...It is the absolute extreme," he told City A.M.
He argues that this has created an opportunity for Safestay to offer the opposite by combining affordable accommodation – starting from £20 a night – with social facilities to create a community feel.
"We don't sell ourselves as a party hostel. We are offering a nice place in a nice environment," he said. "And because of the high quality of the offer we have a full spectrum of customers from school groups to men in suits and families."
Safestay is currently the only listed hostel operator, however, Lipman believes it won't be long until the Hiltons and InterContinental Hotels of this world jump into the sector, either by setting up their own operators or buying smaller rivals – including his own firm some day.
In the meantime, Lipman is eyeing further site openings in the UK as well as Europe, where it has earmarked cities including Amsterdam and Milan.