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Published 30 September 2023

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By: Financial Times

Private equity-owned accommodation group expects record income this year as millennials and Gen Z trade down

Millennial and Gen Z travellers have boosted demand at Generator Hostels by trading down from more expensive Airbnbs and four-star hotels, as room rates have risen sharply amid the cost of living crisis.

The private equity-owned accommodation group is one of the world’s largest operators, running 21 hostels with about 12,000 beds across Europe and the US. It is on course for record revenues of €225mn this year and earnings before interest, tax, depreciation and amortisation of about €75mn.

Generator’s revenues are on track to be up about 20 per cent on last year while the group’s earnings are nearly 30 per cent ahead.

Jason Kow, chief executive of private equity fund Queensgate Investments that owns Generator, chalked the group’s success up to its affordability during an economic downturn.

“It’s cheaper . . . if I want to travel to Paris and I see where all of the other economy hotels are going in terms of pricing and I have an option to stay in the 10th arrondissement . . . and I can do that at a fraction of the price but I have to share accommodation, it becomes an interesting proposition,” said Kow.

In the seven months to July, average hotel room rates were up 14 per cent on last year and 30 per cent ahead of 2019 levels, according to industry data provider CoStar.

“Affordability is definitely a key component and as a result we’re getting more people . . . based on cost of living trending down into our product,” said Kow.

Generator owns and operates sites in big cities including London, Barcelona and New York. In the next year, it is planning to launch 10 more sites worldwide under an asset-light model where it does not own the long-term lease, including a new hostel in Bangkok.

The average age of a Generator customer is 27, but Kow said the group also catered for families looking to travel on a budget and had also received corporate bookings. Young people’s enthusiasm to spend on travel and the huge demand for tourism post-pandemic had put the group on a strong footing to take more market share from other accommodation providers, said Kow.

Queensgate, which has about €3bn of assets under management, bought Generator for €450mn in 2017. Kow said he would hold on to the asset until there was “more certainty” over interest rates or “perhaps even a few interest rate reductions”.

“Then we can entertain some sort of strategic option but at this stage we’re focused on growth,” he added.

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