Israeli hostels are flourishing. More and more hostels are opening in every city, offering a quite different accommodation experience than is usually associated with hostels as a default option for low-budget tourists. Israeli developers are expanding or opening new places, and not just in Tel Aviv and Jerusalem. The large "affordable hotel" chains, including Selina, Meininger, and A&O, are already on the way to opening Israeli branches.
"Up until recently, the security situation limited growth in beds and opening hostels in Israel. Now that almost five years have passed since the most recent war, however, it's having an effect. There's a steep rise in the graph. We see new places opening and the conversion of existing accommodations, such as guest rooms, into hostels in response to free independent travel tourists, whose numbers are growing," says Efrat Laor, manager of Israel Hostels (ILH), an organization that combines 37 hostels with 3,000 beds - hostels customarily count beds, not rooms.
All of ILH's hostels are dormitory rooms - the guest pays only for a bed in a room, "and they have to meet the conditions we set for them. First of all, there's a shared space and/or a shared kitchen, because we believe that the heart of a hostel is the meeting between the travelers. Secondly, we want there to always be beds for less than NIS 100 a night. If a hostel has private rooms, the price should be reasonable, not NIS 1,000 a night. There's a service convention, of course, that there should be someone who speaks English, and so forth," Laor adds.
What is the idea? A bed at a fair price and a lot of social experience. In some hostels, a shower is an integral part of the room; in others, not. Some have a closet, others do not. The motto is that the room does not really matter; the important thing is the public space. This is the source of the experience and the reason that many tourists, not just young backpackers, are attracted to a hostel.
Not every institution wants to be included in the definition of a hostel, however, and there are reasons for this. "Hostel is a term with a glass ceiling," says Selina head of Israel Yossi Mautner. "We're not a hostel and not a hotel. This is a new product that has both suites with 50 square meters and a sea view and beds in shared rooms. We have 12 types of accommodations at prices ranging from $35 to $400 a night. Everyone can find themselves in Selina."
"The use of the word 'hostel' is associated with youth hostels, and that's not what we're offering," clarifies Eli Oknin, business development manager in Israel for the German Meininger chain, which has locations in Europe and will soon open its first branch in Israel. "We offer a hotel that appeals to low-cost tourism.
"We started off as a hostel offering a bed at relatively cheap prices. Young people were naturally the first to take advantage of this, but in time, a tourist interaction took place, based on online stories about experiences in the shared space. We realized that there was potential here, and introduced a mix of rooms for a diverse audience. Tourism today is far more 'low-cost,' and not necessarily in direct proportion to low-cost flights. People want to pay less for accommodations, the flight, and food at the destination."
Worth $200 million
Meininger currently has 24 hotels in Europe, and is scheduled to open at least 14 more branches, including an initial foothold in the US. The chain has already devised a format for its Israeli branch - a variety of accommodation options with at least 100 beds - but it has not yet found a property. The focus is on Tel Aviv and Jerusalem, in either a new or converted office building. The price range at Meininger is €20-25 per bed and €50 per room, with the price varying according to the season.
Other global chains planning to open branches in Israel include A&O and Selina, which was founded in 2015 and now has 44 branches in 19 countries. The chain intends to open branches this year in Israel, Greece, the UK, Portugal, and Poland, and is also entering the US market with branches in Manhattan and Miama. Selina, founded by two Israeli entrepreneurs, recently completed a $95 million financing round at a company value of $200 million.
Selina will open its first branch in Israel this fall in Neve Tzedek in Tel Aviv next to Eilat Street. It will have 144 beds "that will enable the millennial crowd to sleep in the mostly desirable and expensive neighborhood in Tel Aviv," Mautner says. Selina's second branch will open in Tel Aviv's Levinsky neighborhood in a building being converted from offices. The chain is also considering locations on Shalma Street and on Jerusalem Boulevard.
Selina's properties in Israel are rented for 25 years through Ampa Real Estate. In addition to branches in Tel Aviv, Selina is negotiating to open a branch near Lake Kinneret. There are also plans to reach Mitzpe Ramon, Eilat, the Dead Sea, the Galilee, and the Golan Heights.
"We'll create a community of digital wanderers who can move between all of our branches in the world and work from there with their laptops. This is part of the global process of blurring the concept of 'home.' We're taking into account that within 15 years, one third of the people employed in the world will be freelancers. One out of nine people will be able to work from anywhere in the world. That's a significant figure that pushes us to be ready with infrastructure of wherever it leads," Mautner explains.
"Globes": Many developers says that most of the investment in building a hotel is in real estate, so that in a relatively small investment, it is better for them to make the rooms luxury rooms and charge guests more money.
Mautner: "When you combine all of the beds in the various formats of Selina's rooms, we get turnovers that are just as high as those of a boutique hotel. In addition to rooms, our business model is based on revenue from restaurants and bars, workshops, and the content that we offer to the guests. The idea of one property offering a lot can be more profitable than small hotels, and the mix between the different types of accommodations is the interesting business model.
"Even business tourists from Europe, many of whom are millennials, don't want to sleep alone in a hotel chain; they prefer meeting people, meeting locals, and getting content and an experience, just like tourists in the 25-35 age bracket. We provide them with the entire package: yoga classes, work spaces, and a restaurant and bar at a fair price. They have no reason to leave Selina. The goal is to attract the local audience and let them meet tourists. This is an important interaction that tourists are looking for - not just choosing the most interesting yoga teacher in the area, but also through a fitness room and bar that we want them to frequent. The sharp distinction between a vacation and ordinary times is over. People circle the globe and the tourist products have to provide them with ordinary conditions, even when they are not in their country of origin."
The most important thing is a good time
The motif of the importance of the public space in a hostel was mentioned by all of the people interviewed for this story, as well as on the Hostelworld website, the Booking.com of the hostel segment. Instead of showing pictures of rooms, the pictures show mainly an atmosphere of enjoyment. Enjoyment is the motto of the Abraham Hostels chain, which has branches in Tel Aviv, Jerusalem, and Nazareth. The chain hosts shows and artists' workshops. Founding partner responsible for strategic business development Gal Mor says that what connect all of the chain's activity is the independent tour company that it operates seven days a week.
Abraham Hostels' next branches will be opened in Jerusalem, Eilat, and the Dead Sea. According to the business model, the company does not invest in real estate; it rents premises on long-term leases. In Tel Aviv, the property owner is Bezeq (TASE: BEZQ), while the property owners in Nazareth and Jerusalem are private parties. Mor calls what is happening to the local hostels market with the entry of the big chains a result of the combination of the tourist boom in Israel and worldwide and the type of tourists, who include millennials searching for a social attraction and a local connection. "A hostel is designed to provide everything. People care less about the style and the luxury than they do about the experience and how it photographs. People fly to Israel at a very low price and run into expensive accommodations. There's an enormous vacuum, so there's a demand for cheap accommodations, and then for a cheap beer. We also try to provide that in the framework of the cost of living constraints of the country," Mor explains.
The price at Abraham Hostels for a bed in a shared room, including breakfast, is NIS 80-110. "We also have a market of businesspeople who can afford a business hotel, but who don't want to be stuck alone in a luxurious room. The focus of independent tourists also sends a strong message to the local businesses around. They all benefit from the tourists coming to us," Mor says.
The average occupancy rates at Abraham Hostels, which is registered with the Israel Hotel Association, not the ILH, mainly for reasons of licensing and regulation, is 90%. What about overseas plans? "After we complete the strategic plan in Israel, in principle we'll expand overseas. The main motivation for it is to balance the risks. As long as the hotel business has no margin of safety, in incoming tourism, we're like a barrel of gunpowder you can't put all of your cards on," Mor declares.
The Cinema Hostel was recently opened in the famous Orion movie theater in Jerusalem by two developers, Michael Perlstein, 31 and Adir Amsalem, 27, with an estimated NIS 8 million investment, with assistance from Keren-Shemesh. The hostel, located in a building marked for preservation, is a private property leased for 23 years. Cinema Hostel has 160 beds, mostly in dormitory rooms. Soon, in conformity to the capsules trend, Cinema Hostel will offer 50 more beds on a capsule room format, which Amsalem says enables guests to have some privacy and still be in the hostel framework, with an emphasis on social activity. "The capsule design is reminiscent of an airplane design. There is not a centimeter of space that is not used for storage or functions, such as a bench or a shelf to put a toothbrush on," Amsalem says. The mix of guests at Cinema Hostel includes an absolute majority of tourists in the 25-35 age bracket. The chain's policy imposes a minimum age of 18 "because the young crowd has its way of enjoying itself, and the presence of families can detract from this," Amsalem explains.
Minimal marketing
As expected, most hostel guests come from online, from the search stage to the ordering stage. Amsalem says that most of Cinema Hostel's marketing is done online through travel agents or websites. As with hotels, the rating a hostel gets is a significant factor for a tourist, and for the hostel itself, of course. "This is a critical factor," Amsalem says. "In hostels, the rating will be higher than for hotels, and this is because the experience that people get and the attitude about what you get for the money. It's definitely the experience, not just the bed. The guests are invited to learn how to prepare humus, or for a musical session with the locals." Selina believes in minimal marketing efforts "because when you create good content and appeal to the local groups with this content, the travelers are able to spot it and they come," explains Mautner. "Instead of investing in marketing, we invest in creating good content. If we do it right, it's our strongest marketing tool."
Taking advantage of the real estate space is a challenging task for the hostel developers. The Spot hostel chain currently has one branch in Jerusalem and another in Zikhron Ya'akov, and will open another on April 1 in the Tel Aviv Port. This branch will have 90 rooms with 360 beds. Instead of the capsules concept, which is dominating the hostel segment, owner Rami Ohana says his solution is to put the beds in tents. "We had 10 meters of height in the space, and we couldn't build more rooms. The solution we found was to set up tents on an internal ceiling of the floor of the rooms. This is a new concept. I take advantage of the space that would have remained empty, and I have almost no expenses. A double tent will be sold for $40, including breakfast, and a tent for four will be sold for $15 a person, including breakfast. The prices vary according to demand and what the competition is doing," he explains.
The chains are opening hostels right and left. Aren't you afraid of saturation?
Mautner: "I've heard that Israel has a shortage of thousands of beds. Jerusalem is the recordholder in tourist growth, and Tel Aviv has an enormous technological and business community that attracts tourists, and it's growing."
Laor: "The hostel tourists are more stable than the rich travelers or tourist groups. An initial vacuum might be created, but then a situation will emerge in which enough tourists will come to occupy all of the beds. What Israel needs is to become an obvious tourist destination for Europeans, just like Israeli backpackers have obvious destinations, such as South America and Thailand."
Published by Globes, Israel business news - en.globes.co.il - on March 10, 2019
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