COVID-19 impact on European hostel performance
Several weeks ago, we studied the impact of COVID-19 on London hostel performance. We now expand our analysis with a look at four European markets for insight into how COVID-19 has changed hostel performance patterns.
Fluctuating supply reaches new extremes
Hostels, which track performance by beds rather than rooms, are no stranger to fluctuating supply. Unlike most hotels, hostel supply can fluctuate both seasonally and monthly as beds are added or removed from dormitories. During summer months, student housing may temporarily convert to hostel-style accommodations to allow for additional inventory during the high season. Hostels gain additional supply flexibility with quasi-private “family rooms”, which can often adjust bed counts to accommodate families or small groups.
The COVID-19 pandemic has taken this normal operational aspect to new extremes. Many hostels have temporarily closed due to government mandate, diminished demand, or until proper safety precautions have been implemented. The hostels that remained open may be restricting bed availability or limiting dormitory capacity to appropriately follow social distancing guidelines.
In markets where STR benchmarks hostel performance, the number of beds closed has varied widely. The U.K.’s strict lockdown mandate effectively closed Edinburgh and London hostels from 23 March to 4 July, although many operators expect to delay reopening until fall.
Amsterdam and Berlin hostels experienced fewer closures over the past few months, and while Amsterdam bed closures increased in May, Berlin beds were down only 4% from 2019.
A new look for occupancy
In addition to impacting market supply in novel ways, the COVID-19 pandemic has also caused changes to how we report and analyze occupancy. Temporary hostel closures impact occupancy from both a supply and demand perspective. As more properties close, the options for hostel accommodation thin and the remaining hostels can experience relatively higher demand due to the lack of available options in the market. Meanwhile, hostel supply can appear understated in some cases when these temporarily closed beds are removed from the market supply count.
The change in supply gives rise to a new way to calculate occupancy: using reported supply of open hostels only or using full inventory of all the beds in the sample. Both methods have their uses but the latter, or full inventory occupancy, will necessarily be lower than reporting occupancy because while demand is the same, full inventory supply is larger.
In Amsterdam and Berlin, the differences in reporting occupancy and full inventory occupancy are minor due to the relatively small percentage of overall bed closures. In Amsterdam, 32% of beds in STR’s sample closed, and reporting occupancy was 1.3 percentage points higher than full inventory occupancy. In Berlin, only 4.1% of beds closed in May, and the difference in reporting and full inventory occupancy was only 0.3 percentage points.
Ancillary Revenue losing importance
While shifting supply has impacted occupancy, diminished demand has impacted hostel revenue metrics. Traditionally hostels have supplemented low rates with ancillary add-ons, and STR captures that revenue in Total Revenue per Available Bed, or TrevPAB. TrevPAB combines Bed Revenue and Other Revenue, or revenue earned from rentals, F&B, or any other paid amenity on offer.
For Amsterdam hostels, the difference in RevPAB and TrevPAB has narrowed over the past few months. In 2019, hostel TrevPAB was roughly €5 more than hostel RevPAB, but over the past two months of lockdown, that gap has decreased to only €3.
Some of the decline can be attributed to decreased demand: Fewer guests led to fewer opportunities to increased ancillary revenue. Other revenue streams may be suspended as well. Tours and ticketed events are likely postponed or cancelled, and F&B outlets may remain closed even as hostels begin to reopen.
Weekly hotel data through June 27 suggests that better news may be on the horizon for Amsterdam and Berlin hostels, although Edinburgh and London properties remained closed through the month. July will likely be a pivotal month as both U.K. markets and European borders reopen.