[+] Office Anywhere: Digital Nomads Driving Hostel Transformation

When Paul McGrath learnt he would be taking the reins at YHA Australia, during the 2019-2020 bushfire seasons, he knew he was expected to shake things up. “The organisation’s just over 80 years old and I’m the third chief executive in those 80 years,” McGrath tells The Urban Developer . “And it’s well-known in the backpacking space, it’s well-known in hostelling. They come with certain perceptions in Australia. “Overseas, it has very different connotations altogether, it has very positive connotations for travellers.” On top of a horrific summer for the tourism industry, YHA was suffering from a mismatch between market and marketing. Australians associated the not-for-profit with backpacking—cheap and often nasty—while international visitors thought it too dowdy, compared to more overtly party-focused hostel brands. It would be a difficult enough set of circumstances for any organisation, and for any leader. Nobody would have asked for, let alone predicted, a pandemic to be added to the mix. Since then, McGrath has led the organisation through a restructure of financing, shuffled the 44-property asset portfolio, and overhauled the brand identity. Perhaps even more importantly, while the core mission hasn’t changed, YHA has adapted the markets it targets and the way that it services them. In short, it’s trying to change the meaning of hostelling. ▲ The YHA’s Paul McGrath and part of the shared workspace opened last year at the Katoomba YHA hostel. “We’re really looking at all parts of the business. New revenue streams, operating systems and management systems, our property portfolio,” McGrath says. “Everything on the inside of the business has changed, and we’re targeting new, more contemporary market segments. “We’ve purposely worked through it. We’ve developed a broader market. The pandemic has really assisted. Even though it was devastating for the business, it’s actually assisted in that transformation.” In reward, YHA is running occupancy rates as high as 87 per cent, including 97 per cent on a 500-bed asset. The company’s also projecting a profitable 2022, despite dire macroeconomic conditions and a tourism sector limping well below top speed. Evolving to meet needs Part of that success has come from understanding which customer demands have evolved and which have stayed the same. While hostels traditionally use beds instead of keys as a metric, private rooms are gaining in popularity. The organisation’s product is now 32 per cent singles, doubles or triples. But YHA visitors still appreciate the focus on facilitating connection through shared spaces and experiences. “The backpacking market, the hostelling market, is changing and has changed. People are looking for low-cost accommodation, but quality low-cost accommodation,” McGrath says. ▲ The Byron Bay YHA hostel also now has a co-working space. “Our proposition is different compared to a hotel, as we focus on building community. “There are commercial hostelling organisations out there, which do well, whose focus is on that party atmosphere. Which is cool. And I guess that’s where backpacking gets the reputation from. But that’s not us. “We’re about providing quality, low-cost accommodation for like-minded people. We do a lot of school groups, we have a lot of families travelling, we have a lot of grey nomads.” Since the start of the pandemic, YHA has seen a reversal of the 70/30 per cent international/domestic customer split. But one of the biggest pivots for YHA has been the recent move into co-working spaces, with a trio opening. in the Katoomba, Byron Bay, and Brisbane hostels, in late 2022. Gap in co-working spaces It’s a curious play that comes after exhaustive market research, but for McGrath it’s both intuitive and an earner. “All these guys, WeWork and the co-working spaces, are in the CBDs ...WeWork in a CBD goes for about $100 a day for a desk. Obviously there’s a big demand for low-cost co-working spaces,” he said. “What we saw in the market was a big gap for co-working spaces in regional areas. And the majority of our properties are in regional areas.” ▲ The rooftop of the Brisbane YHA Hostel. McGrath says part of the solution is providing a desk and good WiFi and a fairly quiet environment: “all those things that you would expect in a workspace. But what makes these places work is a network”. “So again, leaning on our opportunity to build community in properties where people stay, it’s the same type of experience that we were looking to create in our co-working spaces … we see that as being a revenue-generating opportunity. We see that it’s actually adding to our product mix.” Somewhere between 5 and 10 per cent of YHA’s trade is already customers working and travelling simultaneously. The organisation is now looking to lasso multiple segments with its co-working spaces: work-from-home types in remote areas who want to get out of the house occasionally; digital nomads, who permanently play by day and manage client calls by night. A third target is the work-from-anywhere market, or office workers who enjoy a change of scenery for a few weeks a year. Move a big shift for YHA While international brands such as Selina have already pushed hard into specialising in work-travel markets, it’s a big shift for YHA. Instead of targeting the great unwashed hordes of 18-24-year old backpackers on their gap year, YHA is looking for laptop-wielders with a little salt-and-pepper. The ideal customer wants to experience Australian culture at a rate of $40 per night, while being exposed to both local and itinerant businesses. And that’s led to an evolution in property strategy for the organisation, including the massive deal at the heart of Sydney’s Tech Central. “There’s obviously the work-from-home flavour, because of the pandemic. But also there’s the shift to work-from-anywhere. Our partners Atlassian have a work-from-anywhere policy,” McGrath says. ▲ YHA has embraced the growth of work-from-anywhere with co-working spaces in its hostels and a partnership with Atlassian for its Tech Central tower in Sydney. “We’ve partnered with Dexus and Atlassian to build a brand new property in the first five floors of the Atlassian Global Headquarters at Tech Central. “Half of level one is going to be a co-working space. So we see a good opportunity there, and it’s certainly going to be part of our DNA going forward.” The existing YHA asset on the site has been dismantled carefully and will be integrated into the new tower’s structure, on track for a 2026 opening. Appeal for “curious travellers” McGrath says the intense focus on environmental sustainability will be attractive to their “curious travellers”, who will also appreciate the organisation’s social experiences. “As a not-for-profit, we need to provide profitability to be able to continue to reinvest in our properties. So it’s a key thing. “But we also have very strong social commitments, and we need to be able to fund our social experiences and environmental experiences. That’s really super important to us.” You are currently experiencing The Urban Developer Plus (TUD+), our premium membership for property professionals. Click here to learn more.

[+] Office Anywhere: Digital Nomads Driving Hostel Transformation

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