Capsule Hotels Target Millennials

Capsule hotels offer Sri Lankan investors a relatively quicker and low-cost way to provide accommodation than putting up conventional hotels for the increasing numbers of tourists visiting the island. The target market are young travellers wanting to explore without the expense of a hotel room.

Soft blue lighting, digital displays, and control panels give an almost space capsule-like feel to the place. The modular, double-deck accommodation pods at ‘The Capsule by Sala’, a capsule hotel, offer an alternative form of accommodation for visitors to the island – one that’s basic but comfortable, without the trappings of a conventional hotel room.

The duo who established the hotel, Chinthaka Wijewickrama and Fayaz Hudah, think the concept is perfect for existing and prospective homestay owners. Other investors with buildings in suitable locations are also looking to quickly set up or expand existing tourist accommodation and improve returns on their properties.

The capsule or ‘pod’ hotel concept emerged in Japan almost 40 years ago as compact, cosy spaces for budget travellers and mainly individuals who want cheap, safe, overnight accommodation, usually near train stations in big cities. Today’s versions retain the same small size, usually enough to put a single or double bed, but are sleeker, stylish, almost luxurious spaces.

The first capsule hotel in the world was the Capsule Inn Osaka, designed by well-known Japanese architect Kisho Kurokawa and located in the Umeda district of Osaka, Japan. It opened in 1979. China opened its first capsule hotel in Xi’an in 2012. In 2014, the first European capsule hotel opened in Belgium with bigger pods to accommodate taller clientele.

capsule hotel sri lanka pods

Capsule hotels offer independent, experience-seeking millennial tourists complete privacy and independence.

Wijewickrama and Hudah are targeting millennial travellers looking for authentic experiences but who also want privacy and independence. ‘The Capsule by Sala’ on the Galle Road in Kollupitiya is a 30-bed, three-floor setup that opened in September 2018. It averaged about 30% occupancy in the first two weeks of opening, and by the start of 2019, around 55%. Much of the traffic comes from online booking channels and travellers are mainly Asians, Europeans, and Middle Easterners.

A capsule or pod is almost like a fully-functioning hotel room expect that some amenities like toilets and kitchen are shared. TVs, safety boxes, individual mirrors and mood lighting are all provided in a capsule, which is accessible by a personal smart card for added safety. Separate common areas are provided for recreation or relaxation, and others for refreshments.

“The main difference between bunk beds for budget travellers in hostels and this is that capsules have most of the functions and features of a room, plus the privacy,” explains Hudah, formerly of Information and Communications Technology Agency, and now an investor in tech start-ups. Backpackers stay in hostels that are for a different type of traveller, more European-centric. Capsules are more Asian-centric, for travellers such as millennials who may not be into interaction with fellow guests but are looking for privacy and are usually glued to electronic devices. Chinese tourists are now only second in the total numbers of visitors to the island, behind Indians, many of whom are day travellers and not actual tourists.

The tourism industry expects arrivals from Asian countries to grow in the coming years, especially given promotional efforts in markets like China. Close proximity, strengthening economic ties, and new, varied product offerings should help.

“Capsules in Sri Lanka are a modern take on offering a differentiated product to the independent, experience-seeking tourist, while offering complete privacy and independence,” explains Hudah. “Young travellers want to explore and not spend a few hundred dollars on a hotel room.” He notes that millennials and younger, independent tourists are experience-seekers. They are cost-aware, but crave privacy and independence. They are looking to move around a lot more and spend money to capture and record their life’s experiences.

capsule hotel sri lanka interior

Digital control panels give an almost space capsule-like feel to the pods, which though small, provide the basic comforts.

Sri Lanka’s tourism product largely consists of properties that are attractions by themselves, drawing visitors who want to spend their time in them, relaxing on beaches or in spas. Or, they are hostels and homestays that mainly target budget, so-called backpacker tourists.

For a number of years, tourism authorities have been trying to enhance the relaxation-centric tourism offering with recreation and activities that add to the total spend per tourist while on holiday. This figure is relatively low in Sri Lanka compared with other similar destinations, notes Hudah. And a hike in room rates will only reduce the total number of tourist arrivals to the country, which will have a knock-on effect across the network of support and other services geared to serve visitors.

The duo behind ‘The Capsule by Sala’ is offering investors keen on tapping into this new tourist market with the opportunity to either own their own branded capsule hotel, where the Sala hotel development firm supplies all the equipment and setup on a turnkey basis, or ongoing hotel management on their franchise brand. Anyone with even very little space now has the ability to gain more revenue per square foot by converting an existing hotel or even a different class of property to a capsule hotel.

Wijewickrema, best known as the founder of electronics retailer Sala Enterprises, says they can offer other investors like homestay providers a franchise under their Sala group name that includes expertise on how to manage and promote traffic or simply help them set it up by providing and installing the equipment.

“Someone who has a homestay set up can easily increase yield by 50% by making this kind of investment because you put multiple beds inside the same space,” says Wijewickrema, who got the idea during his travels abroad and felt the need for this type of accommodation in Sri Lanka. The model offers benefits that an investment into conventional tourism properties doesn’t offer, at a much lower entry price and risk. Any new investment into a conventional tourism property requires significant spending for land if it is located close to or within a major city, and long lead time to bring it online. A lot of risk analysis has to be done up front with no recourse for change once the investment is put in. A capsule hotel, on the other hand, offers investors the ability to locate their hotels close to or within major cities at a fraction of the cost. The ability to recover most of the investment in a situation where relocation is needed is also possible with a capsule type of hotel.

Potential investors who sign up with the duo can skip much of the leg work needed to set up a new business like market research and supplier contacts. “We’ve already done the spadework – from the research to finding a supplier in China,” notes Hudah. “If you have a small space difficult to rent out on the first or second floor, you can convert it and easily start making money. In less than three months from placing the order, you can be commercially operational, which is impossible to do in a traditional hotel. That includes getting the capsules made, shipped, delivered, installed, and commissioned. Also, the amount of staff you need to run the setup is much less compared to a traditional hotel. So, the long-term operational cost is also low.” Another advantage is avoiding the difficulty of finding land for a new property or having to provide space for parking. The duo is already in touch with potential investors in tourist hotspots like Galle and Kandy.

The investment required, while being much lower than putting up a conventional hotel, is not as cheap as, say, offering hostel accommodation or the typical homestay. Setting up costs of installed pods with one-year warranty can range from $2,000 to $5,500 (Rs 340,000-935,000) per pod, depending on features and functionality. Pods come in single and double beds, with various features like sound proofing, television, and safety deposit boxes.

“For $2,000, you can install a single-bed capsule with bare minimum features, and the $5,500 dollar double-bed pod comes with all the features,” explains Hudah. Even common use facilities like washrooms come in self-contained pods. Investors even have the option of setting up capsule hotels using standard freight containers, either 20-footers or 40-footers, if they don’t have their own building and only a land area. A 20-foot container can house up to six bed pods with toilets.

The Capsule by Sala does not supply in-house meals, and instead has a deal with a restaurant nearby where guests with meal vouchers can eat. “We complement each other,” says Wijewickrema. “While we don’t make meals, other investors can choose to set up capsule hotels with kitchens and restaurants.”

Capsule hotel accommodation rates can vary. Depending on location, prices can range from $15 per pod per night to $60-70 (between about Rs2,650 and Rs12,450). In peak season, the Capsule by Sala charges $30-50 (Rs5,300-8,900). In prominent, high-end niche spaces like Galle Fort or Nuwara Eliya, even higher rates can be charged.