Over the past 18 months, global private equity giants such as Brookfield and Apollo have made major investments in the European hostel sector, driving standardization and premiumization in a tourism niche long overlooked by institutional investors. The sector is growing faster than mainstream hotels, drawing market attention.

Brookfield, with roughly $1 trillion in assets under management, acquired the European operations of London-based Generator Hostels for 776 million euros last year. Previously, real estate private equity firm L&G Proprium acquired another European chain, A&O Hostels, in 2023, and A&O secured 874 million euros in financing from Apollo in April this year. Both A&O and Generator plan to double their scale.

Andrew Heath, vice president at real estate advisory firm JLL, said hostels are "the last segment of the accommodation industry that has not really been touched by institutional investors." "People are looking at this and thinking: can hostels be institutionalized? Can they be standardized and premiumized?"

Market data shows that in the 12 months to August this year, the number of large hostels in Europe — those accommodating more than 100 guests — grew 13% to 83 properties. While the total remains relatively small, the growth rate outpaces hotels and other accommodation types.

Brookfield managing director Lauren Okada Young said institutional investors are now "circling this market and seeing that the economics are quite profitable and attractive." She noted that Brookfield was drawn to the hostel sector because its room for expansion is far greater than the hotel market.

Generator's "premium hostels" aim to maintain low costs while adding modern design and amenities, including rooftop terraces and full-service cafes — elements typically associated with boutique hotels.

Philip Westerman, co-managing partner at L&G Proprium, said: "The sector is very fragmented, so the ability to build a platform here and achieve scale is very interesting." He added that hostels typically do not offer room service, so staffing costs can be lower than hotels, while budget pricing makes them more resilient during economic turbulence.

Brookfield-owned Generator plans to double its European assets to 30 hostels by 2030. CEO Xavier Mufraggi said he is looking for properties that can accommodate at least 500 beds, because the model relies on high occupancy rates and can only succeed at "critical mass."

Mufraggi noted that Gen Z is the primary growth market, as they "want to travel more but earn less than previous generations."

A&O has more than 40 hostels in Europe and plans to double its portfolio over the next five years. The company is investing 40 million euros to convert a former office building in central Berlin into a hostel with 2,500 beds, expected to open in mid-2027, which will become Europe's largest hostel.

In recent years, idle office buildings have become a growth source for the European hostel industry. A&O CEO Oliver Winter said converting large office buildings into hotels is challenging because large spaces need to be divided into individual rooms with separate plumbing and natural light, but hostel dormitories can vary in size and have lower customer requirements, making them more suitable for such conversions.

Mufraggi said the biggest real estate opportunity in the sector currently lies in distressed mid-range hotels, which can typically deliver better returns for hostel operators.

Mass tourism companies are also entering the hostel space. UK travel operator Jet2 launched its first hostel-based holiday packages in 2025 to attract younger and more price-sensitive customers.

Some worry that the growth of private equity-backed "hostel chains" will erode the charm of long-established, simple hostels. Evan Zeng, founder of travel platform StayAltered, said: "What you're compromising is the local authentic atmosphere that many travelers love."