Start a Hostel: 8 Keys For Choosing The Best Location


Start a Hostel Location

Location, Location, Location… right? – Bullshit. And here’s why.

Conventional wisdom would have you to believe that the location – the “sacred cow” of a lodging facility – is the most important factor that will ultimately determine your success.

I’m here to tell you that this is BS.

But let’s take a step back here.

As I researched the internet, I was discouraged by how few genuinely relevant information I could find about how to choose the right location for a hostel.

While 95% of the websites quote the old cliché “location, location, location” and mention that it’s important, very few have more than a couple of sentences to offer on the topic.

Well, that was until I decided to fix this shortage of information. So here it is – your honest no-BS guide that will help you choose the right location for your hostel.

You’ll learn why your location is an important part of your overall strategy and 8 keys that can make or break a “great” location. This will allow you to skip what others learned in the school of hard knocks.

Let’s dive right into it.

The Importance & Goal Of Your Hostel Location

In my introduction I mentioned that the old saying “location, location, location,…” is… well, BS. During my time in financial consulting, I learned that this is the #1 myth when it comes to real estate in general. 

And here’s the simple yet logical reason for it: A location is a feature of your business. No more, no less. It is not the sole purpose nor the most valuable of all your assets.

The PRIMARY goal of your hostel, and any business, is – and always will be – maximum profits.

Of course, your location greatly affects this goal but the location itself is NOT your purpose!

Let’s look at an example to make sure you get this right:

Bryan has to decide between two different locations:

  • Location A: Central location but high purchasing price
  • Location B: Less central and lower purchasing price
Hostel Location - Start A Hostel

“Location, location, location” made him believe A must be the better choice… until he did the math.

He figured that location B will result in an overall lower rating of -0.3 points. Since he knows that better ratings directly influence the occupancy of a hostel, he assumed that this will decrease his occupancy rate on average by 5%.

However, buying location A comes with a purchasing price that is double the amount of location B. His calculation shows that over the course of 30 years, the overall profit of location B trumps location A by 35%.

Hence, instead of “location, location, location” I want you to think of:

“Profitability, profitability, profitability,…”

The “best” location from a business standpoint is ultimately the one that brings you the most profits. Period.

Now, don’t get me wrong.

Location is still important but it’s just one piece of the overall puzzle. In fact, the latest report from Hostelworld even showed that the significance of your location is becoming less important. [Source]

That said, there are 4 reasons why it will always play a big part in your success:

  • 1) Once chosen, there’s little you can do about it

Think of it as an immobile property – because that’s what it is. You cannot just move a building.

Of course, you could move or buy another property but this is typically accompanied by many costs. So if you’re located in an area that doesn’t attract any people, not even a fairytale castle will bale you out of that hole.

  • 2) It affects your rating

There’s no doubt. Your location has an impact on your overall rating. And your overall rating directly influences your occupancy, i.e. profitability.

That said, if you’ve read through my previous blog post about how to get better online reviews, you already know that the overall customer satisfaction is what ultimately matters.

Seldom do your guests judge you based on single factors. That’s not how human psychology works. In other words: your friendly staff can improve your location rating as well as a dirty bathroom can decrease it!

Just have a look at the top 10 hostels worldwide. They’ve achieved an overall rating between 9.6 stars and 9.89 stars across ALL online travel agencies. And yes, some have a fantastic location. But if you eyeball them a bit closer you’ll notice that there are other hostels nearby with an even better location but a much lower score on the location-scale.

That’s the beauty of human psychology. We are BIG  bags of emotions and seldom act purely rational.

Fun fact: one hostel was able to increase its location rating from 7.5 to 9.5 stars just by improving their overall guest satisfaction.

  • 3) Googling the location is often part of the booking process

Especially for hostel travelers who are dependent on public transport, location plays a crucial role.

That’s probably one of the reasons why 81% of travelers start their search for accommodations on Google. [Source] Besides the list with the most popular hostels, it also shows their location on a map which makes it incredibly easy to filter out inappropriate locations.

  • 4) Your hostel is typically not a travel destination

Sadly, there are only a few exceptions to this rule. People are craving awesome experiences and trips. A hostel is just the lube of their adventure.

That said, there are some hostels like the “Tribe Theory” hostel in Singapore that have such a strong unique selling proposition (USP) that they turn into a travel destination.

How do I know? – I’ve read their description and I was immediately sold.

Their first sentence on Hostelworld says: “Are you a young startup or entrepreneur on a budget, busy building your business venture and need an affordable yet soulful accommodation in the heart of Singapore? Then look no further!”

This makes my mind scream “HELL yes, that’s ME!”. And the sale is done. Seriously. Booked. I’ll stop by for a week on my way to the US next year.

That’s the power of niche marketing at work. But that’s another topic.

In a nutshell: Yes, your location is an important factor, but it’s just one piece of the overall puzzle to achieve maximum profitability.

8 Keys To Choose The Best Location For Your Hostel

The “best location” is by definition the one where your unique business can be most profitable. Hence, to choose the right location you want to consider all the different factors that affect your overall profitability.

To clear up any bewilderment, here’s a list of the most important aspects.

#1 Market & Competition

You can have the most beautiful hostel on this earth but if your area doesn’t attract any hostel travelers, you’re toast.

Your market is what keeps the cash register ringing. The same holds true in case you’re thinking about starting a hotel, B&B, or motel.

Here’s a list with the most important aspects to determine whether your intended area shows potential or not.

Market capacity:

  • How many visitors does your country get every year?
  • How many visitors does your city get every year? (absolute number & as a percentage)
  • How many visitors thereof are budget travelers who choose to stay in a hostel?

A great example of this is the city of Cairns in Australia where I currently live: With only 0.6% of Australia’s total inhabitants, about 27% of all Australian tourists visit the city. That’s incredible! [Source]

Competition & saturation:

  • How many hostels are there in your country?
  • How many hostels are there in your country compared to all hostels worldwide?
  • How many hostels are in your area? (absolute & as a percentage)
  • How many hostels are there in relation to all inhabitants + yearly visitors? (=hostel density rate)

Check out my article about hostel number statistics to get the most important statistics for your country (e.g. number of hostels).

What you’re looking for is an area that isn’t already saturated with too many great hostels but still offers great potential.

Location Hostel - Competition

Occupancy rate:

  • What’s the average occupancy rate in your country?
  • What’s the average occupancy rate in your city?
  • What’s the average occupancy rate of competitive hostels?

I recommend you choose a location with a higher than average occupancy rate.

Seasonality:

  • How strong is the seasonality in your country? 
  • How strong is the seasonality in your city?

If you can’t find these statistics online, you can ask other innkeepers, visit the local chamber of commerce or ask lodging associations. Another great resource is the state and local tourism board. They should have a wealth of information on lodging statistics, occupancy rates, and even area attractions.

Your goal is to find out if there’s an actual demand for a new hostel. Hence, steer away from areas with a surplus of lodging choices with low occupancy. 

What about the competition? Some websites suggest too many competitors are a red flag. In my opinion, having competition is a good thing! And there are two reasons for that:

  • 1) It proves that it’s possible to run a profitable hostel in the area

Starting what no one has done before you comes with a higher risk. Hence, I recommend you start your first hostel in an area where there are other successful hostels instead of finding the “perfect” place where there’s no competition at all.

You can always outperform others – without exception. If you’re willing to keep pushing and continually try to improve your guests’ overall satisfaction, success won’t be long in coming.

  • 2) You have less “establishment” work to do

Being the very first hostel in an area is like being the older sibling. You are the first one to push the rules, push the curfew and the language used in the house. You will inevitably have more discussions to deal with and you will get to be creative to get your point across.

However, by being the younger sibling, aka second hostel, your infrastructure, convenient rules, and regulations are already set up: fewer discussions about zoning issues and your neighbors know how hostels work and what to expect.

All in all, it’s just a much smoother way to begin…

Bottom line: Don’t fool yourself into believing that once you’ve built your hostel, people will come automatically. Use the wealth of information and statistics to see if there’s an actual demand for a new hostel. If not, do NOT proceed. Look for another area and repeat your research.

#2 Attractions

Notice that the headline says “attractions” and not sights. What we’re ultimately looking for are things that attract people to find the best spots in your chosen area.

More Tourists = Higher Occupancy = More Profit

Hopefully, by now you realize how false the general recommendation is that you need to be in a central location! If there are no attractions in the center, there’s no reason for you to be there.

Optimally, you want to be within walking distance of attractions because most hostel travelers are not equipped with their own means of transportation during their stay.

Here’s a list with standard attractions:

  • Nightclubs
  • Activities (hiking, climbing, waterskiing,…) 
  • Colleges or universities
  • Festivals & events (e.g. German Oktoberfest)
  • Beaches
  • Companies (if you target business travelers)
  • Parks
  • Shopping centers
  • Famous sights (e.g. Opera House)

While these attractions change depending upon your target market, every person has basic needs that have to be fulfilled.

Abraham Maslow is still considered the “pioneer” on the topic of human needs ever since he published his famous hierarchy in 1943.

Maslows Hierarchy Of Human Needs

The core idea behind this hierarchy is that the needs at every level must be satisfied before people can move onto a higher pursuit, i.e. the next level.

As you can see, two basic physiological needs are food and water. Hence, your hostel should always be within walking distance to grocery stores, cafes, restaurants, and bars. It’s also advantageous to have haircutters, gas stations, and banks nearby.

#3 Transport Links & Property Access

The vast majority of your guests won’t have their own means of transportation. Hence, they’ll be completely dependent on public transport.

By choosing a location that provides no or no easy way to get to your hostel with public transport, you basically dig your own grave.

There should be trains, Ubers, or buses around. Proximity to an airport is the sprinkles on top of your ice cream, but not a necessity. Also, make sure that your property is easy to find and accessible in all types of weather conditions

While the majority of travelers book their accommodation before they arrive at the destination, there’s still a group of people who just walk into a city to find a place to sleep. This is another reason why it pays off to be in walking distance.

Hostel Location - How To Choose The Best

A big bonus is when your location is a part of a popular travel route.

Example:

The Australian “east-coast-tour” is considered a “must-do” for every backpacker in the country. There are two hop-on/hop-off bus companies that allow people to easily travel north or south at their own pace. And yes, in case you wonder – I’ve completed the east-coast-tour myself in May 2019 😋

Having a hostel in a city that is a recommended stop is a HUGE benefit. That’s the reason why a tiny city like “Byron Bay” with 9.000 inhabitants gets around 2 million yearly visitors. [Source] Boooooooooooom!!

Sorry, I sometimes get a bit too excited. 😅

On the other hand, beware of locations that are no destination and on the way to nowhere.

#4 Climate

The climate of your area affects the degree of seasonal ups and downs and your overall occupancy. 

In general, more people are attracted by warm weather than cold temperatures. That’s why you hear most innkeepers complain about the winter (off-season) and you don’t hear them whine during summer.

The more stable the temperatures are the less you’ll be influenced by the seasons.

Hostel Location Seasonality

Example: 

I’m currently writing this article in Cairns, Australia. I actually planned to stay in Sydney for the rest of the year, but it just got too cold for me down there. Hence, I followed the many other travelers who desperately craved the sun.

I ended up staying in Cairns because of its mild “winter” with average temperatures between 17-26°C (63-79°F).

It turns out that Cairns has an average occupancy rate of 68% IN THE OFF-SEASON! [Source] FYI: the overall occupancy rate for hostels worldwide is 57%. [Source] That’s huge!

While there are many factors for this location’s huge potential, its climate definitely plays a key role.

#5 Safety

If you have a queasy feeling when walking through your area, be assured that your guests will feel the same.

As you can see in Maslow’s pyramid of human needs, safety comes right after the physiological needs. Even if you’re not responsible for the stolen phone of your guest, it does something to their overall satisfaction.

After all, how amazing was your 2-week Chiang Mai trip where your new iPhone got stolen?

While it might be tempting to choose a more dangerous part of the city due to its lower building prices, it also comes at the cost of lower ratings. Some websites, like Hostelworld, have “safety” as a separate factor in their review system.

I experienced first-hand what it means to live in a hostel which is located in the most sleazy location. When I arrived in Sydney in December of 2018, I stayed in a hostel within a suburb called “Kings Cross” for my first 3 weeks.

I didn’t know anything about the area when I booked my stay. However, after my new-bought bicycle got stolen 4 days later, I moved to a safer area.

The thieves were so kind to leave the cut steel lock and my helmet behind. Thinking back about my time in this area, I still have mixed feelings although the hostel was great!

Hostel Safety Location

#6 Zoning & Regulations

Zoning, regulations, laws, and rules… by far my favorite topic about hostels 😍

Not.

Anyway, they are a necessary evil when it comes to choosing a location. And let me get one point clear right from the start: NEVER EVER start a hostel in an area that is not zoned for it!

Gosh. I’ve heard so many stories about innkeepers who put their blood, sweat, and tears into a hostel only to get shut down by regulatory officials.

I’d love to give you some specific tips about this issue, but the truth is, zoning laws differ from country to country and even from city to city! Hence, the best way for you to play it safe is by contacting the local city government for zoning information.

There are areas with unfriendly zoning laws and areas where zoning is not a big deal. Be sure to check that out when you’re researching your location.

If you have an aversion for zoning and regulations (like I do), keep in mind that they ensure your guests that your operation is safe and meet a minimum standard. They’re not made to punish aspiring hostel owners. In fact, there are – usually – good intentions behind all these seemingly “silly” rules.

#7 Your Knowledge & Language

Last but not least, your pre-existing knowledge and skills come into play. Having grown up in the area where you want to set up your own hostel can be a huge advantage since you’re familiar with all the attractions, the market, the culture and you might already have useful networks.

It’s also a big benefit to speak the language of the country in which you build your hostel to perfection. It’s one thing to be able to order food in a foreign country, but it’s a whole different matter to discuss a building plan with a contractor. 

If you’re not a local, you definitely want to live in the area for quite some time before you make your ultimate decision.

#8 Others

Besides the factors mentioned above, it might be necessary to consider additional factors to make a decision regarding your location.

One example could be natural disasters:

  • Is your area known for having regular earthquakes?
  • What about flooding?
  • How active are the volcanoes? 
  • Hurricanes or tornadoes?
Start A Hostel Location

Nate Bunger, the manager of the “Casa Miraflores” hostel and author of “How to Start a Thriving Hostel and Retire in Paradise” (recommended read), can tell you a thing or two about natural disasters.

After experiencing an extreme dry season of 7 months without rainfall in Colombia, the city lake was almost dried up and the water company had to shut down the water supply system in order to save water.

As a consequence, even basic cleaning became a challenge for him and his staff… not to mention all the upset guests. 

Other aspects might be the availability of parking space, the general appearance of the environment, the neighborhood, and the accessibility of sewer, water, electric and gas.

You might also want to consider the level of privacy. If you’re offering wellness facilities, you might not want to choose a location where all neighbors directly see into your rooms. But hey,… that’s truly the very tip of the iceberg 🙂

Okay, let’s shortly wrap up what we’ve covered.

Bottom line For Your Hostel Location

Your location plays a crucial role when it comes to starting your own hostel. However, the overall goal is – and will always be – to have the most profitable business. Hence, your #1 priority when choosing your location is to research the factors that influence your overall profitability.

Your market and competition are one of the most important aspects to consider, closely followed by attractions and transport links.

That said, ultimately you’ll only find out if it was the right decision by starting and measuring your success.

If you’re making the choice on your own, I advocate you spend quite some time in the area BEFORE you start your hostel. Be a tourist yourself, discover the area and see it through the eyes of your target market.

I also recommend you visit as many as possible properties in that time to get a “feeling” for the market and its prices. Since a change of your location is accompanied by huge costs, it definitely pays off to spend some extra time on it.

There are two common pitfalls among hostel owners when choosing their location:

  • 1) Falling in love with the very first property and making an irrational decision
  • 2) Being too picky, making a mountain out of a molehill and ultimately never decide upon a location

Obviously, the golden mean is somewhere in between. Having visited at least 10 properties before making a decision is a good basis for decision-making.

STOP! 🤚

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Kevin

Kevin is the founder of TheHostelHelper and a former German engineer in his late twenties. In the middle of his grad school studies, he started a consulting business and broke several branch records within the first six months… until he finally quit this venture to pursue his passion for hostels. Kevin is known for his super black humor – yet, super black might still be an understatement. He also LOVES dogs and drinks too much coffee. When he’s not obsessing about hostel topics you’re likely to find him at the gym – where the heavy weights are.

18 thoughts on “Start a Hostel: 8 Keys For Choosing The Best Location

  1. On point, Kevin.
    Like it 🙂
    Cheers, Conor

    P.S. I recommend using a bicycle U-lock. It can’t get cut through that easily.

    1. Hi Conor,
      thanks for your comment!
      I’ve already switched to a stronger lock… haha 😝
      – Kevin

  2. We’re currently looking for a property in Thailand. Yet I’m not 100% sure if there isn’t already too much competition…..

  3. Love the picture of the dog with the glasses 😍
    If I could choose our location again, I’d focus more on the seasonality aspect. It really hits us hard in winter.

  4. Sorry Kevin, I had to laugh when I saw the picture of your lock lying on the ground 😂
    It looks like you could cut through it with normal scissors haha
    😜

  5. I can’t find statistics for the average occupancy rate of hostels in my area (Bangkok, Thailand). Are the stats for hotels comparable?
    Great blog, btw. I really like it.
    Christine

    1. Well, they won’t be as accurate as statistics of other hostels, but it’s definitely better than a guestimate.
      Hope that helps,
      – Kevin

  6. I think the most important aspect is to figure out whether or not there’s a demand for an additional hostel. I see too many hostels these days which were opened just because of the fact that the owners fell in love with the city.

    A location with great potential? – Canberra, Australia.
    As far as I remember, there’s only a single YHA hostel down there and it’s always fully booked.

    However, I don’t like the vibe of the city. Otherwise, I’d start my own hostel there 😉

  7. I can’t wait until our leasing contract is over. We learned the hard way how essential a good location is…. but we already found a new property which is even cheaper :))

  8. Looking back now, I think I should’ve done my homework better. I’m thinking about moving for 6 months now since there are major issues with our current location (bad public transport, loud neighborhood, criminality,…)

  9. I traveled through New Zealand for 12 months before I decided on a city to build my hostel – and it paid out! I think that’s the best way to get a feeling for the different locations and their level of competition.

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