We hadn't heard much from Yotel as a hotel chain for a while. Turns out it has recharged its ambitions for world domination. We're intrigued by its pitch that its micro-hotel design matches well for conversions of decades-old office buildings. Boldness or bravado?
Editor’s Note: Skift Senior Hospitality Editor Sean O’Neill brings readers exclusive reporting and insights into hotel deals and development, and how those trends are making an impact across the travel industry.
Think you know Yotel? Think again.
- Before the pandemic, the hotel chain Yotel was best-known for running a handful of airport locations that had tiny rooms of about 200 square feet or 16 square meters in size.
- After the pandemic, the UK-based hospitality management company has 36 properties open or under contract. These projects are a mix of city hotels. A minority of properties are at airports.
- Its new brand is YotelPad, which it calls “extended-stay residences,” with rooms in a variety of sizes, including up to 600 square feet and even a two-bedroom version. The properties offer kitchenettes, laundry facilities, and co-working spaces and sometimes sit above flagship Yotels.
Yotel isn’t a clone of Japanese pod hotels.
- Japan’s capsule hotels are an extreme concept. “They’re coffins,” jokes Viriot.
- Yotel rooms (called “cabins”), especially at airports, are quite small by Western standards and they do typically feature fold out or expanding beds. But they’re not as small as pod hotels.
- In July, Yotel said it would open a hotel in Tokyo in 2024. Did that mean it stole the capsule hotel concept from the Japanese and is now selling it back to them? No, said CEO Hubert Viriot.
- “I have invited some Japanese architects to look at my rooms in Yotel and they said, ‘Where’s the Japanese influence?'” Viriot said. “Our company’s founders were inspired by Japan, but the product is adapted.”
- “In Japan, Yotel is a level up in size and amenities from the typical business hotel — which itself is bigger than a pod hotel,” Viriot said.
- The typical city Yotel keeps about a fifth of its rooms in larger sizes. The company’s “extended-stay” brand, YotelPad, is about as roomy as CitizenM. (Other overlapping rivals include EasyHotel, Pod Hotel, Generator Hostel, and Mama Shelter.)
Yotel says that, despite making little marketing noise for years, its development pipeline is vibrant.
- Yotel, founded in 2007, is owned about 30 percent by Barry Sternlicht’s Starwood Capital Group and about 70 percent by Al Bahar family’s Jassim Al-Bahar Group. Starwood Capital owns three of the hotels.
- The asset-light company expects to achieve 50 open and signed development deals in 2024 in major destinations worldwide.
- Yotel began by managing properties itself. It’s avoided leasing. It recently started franchising, having opened its first few franchises in Park City, Utah; Manchester, UK; and London (with Tristan Capital).
- “It’ll cost us way more from an operating standpoint to go global,” Viriot said. “But once we create global brand awareness the sky’s the limit because we can then spread out in each market, such as eventually 20 hotels in, say, Japan.”
The pandemic reinvigorated Yotel rather than undercut it, despite its original dependence on business travel at airports.
- To scale up, Yotel restaffed during the crisis.
- “We recruited a new commercial team and bolstered the revenue management team, the digital marketing team, the CRM [customer relationship management] team,” Viriot said.
- The company also changed its operations.
- “During Covid, we furloughed a lot of the local hotel staff and had to fulfill administrative functions on behalf of the hotels at the head office,” Viriot said. “The good thing is that we got to understand the business better and now our 60-person team has a more savvy way of running the portfolio.”
- The company proved its cost model to potential investors.
- “We also demonstrated that we could breakeven operationally at very low occupancy rates,” Viriot said. “London was breaking even at a 20 percent occupancy rate with a roughly 50 pound a night rate.”
Yotel claims to not be a budget brand.
- “We’re ‘affordable luxury’,” Viriot said, though of course he would say that.
- “You get great locations in great cities,” he said. “You get a well-designed room with essential amenities. Every Yotel has a gym with Peletons and other equipment and a restaurant with a lounge.”
- “For owners, we’re unlocking value from real estate because we’re seen as a premium product in our competitive set and can generate a higher return per square foot on the building for owners,” Viriot said. “In the second quarter, our RGI [revenue generating index] showed we were outperforming out competitors.”
- It helps the company can squeeze two paying bookings per every one of the typical sized hotel, on average. That lets the brand make claims of generating an average net operating income of 40 percent. It also lets it suggest that an investor might pay off a loan for a typical project within about five years.
Yotel claims to have overcome a key stumbling block with wooing potential owners by demonstrating the brand can both do conversions — and then get un-converted years from now.
- One hang up some potential business partners have had is that Yotel’s design has looked too niche.
- A potential owner might say, well, if in 20 years, for whatever reason, they no longer want their property to be a Yotel, how hard will it be to convert.
- Viriot said that his company’s success in converting buildings into Yotel simplicity shows that the process can also be reversed, if necessary, to un-do a Yotel in the future without extra trouble compared to other hotel concepts.
- “The real opportunity we’re discussing with most of our investment partners today is not to build hotels but to convert buildings,” Viriot said.
- “Adaptive re-use is a very interesting opportunity because you find in many cities office buildings from the Sixties and Seventies that no one wants to rent anymore,” Viriot said.