Rising traveler demand for capsule hotels to surge by 2022

Japan isn't the only country with a tiny-room mentality. According to a recent report from WiseGuy Research Consultants, demand for capsule hotels has seen strong growth, and isn't showing any signs of a slow down. The global capsule or pod hotels market was worth $159 million in 2016 and is expected to increase by a compound annual growth rate of 6.03 percent to $226 million by the end of 2022—and is gaining momentum in Asian countries outside Japan, accommodating a mix of travelers, from backpackers to business travelers.
Thanks to cheaper booking rates, flexibility and experiential pod designs, this alternative lodging option has attracted travelers across sectors. While Japan pioneered the growing industry, the report reveals China has been quickly rising in the trending market. However, analysts have predicted that Southeast Asia will take the lead with its growth of capsule hotels between 2016 and 2022.  

The pod trend has also shown its stronghold in the market with its prevalence across consumer booking websites. “In the last year, we've seen an increase in the number of capsule hotels listed on [travel website] Booking.com. This growth is coming primarily from Asia, with the nations showing the largest amount of capsule hotels being Japan, China, Taiwan, Singapore and also Russia. Cities with the most capsule hotels on Booking.com are Tokyo, Singapore, Taipei, Osaka and Xi'an,” Oliver Hua, MD of Booking.com in Asia Pacific, told Forbes. Booking numbers at capsule hotels have also risen year over year. Most of these are primarily being made from travelers in Japan, Taiwan, South Korea, China and Great Britain. 

Creating the perfect storm

Asia is known for its pricey hotel rates, making capsule hotels a welcome alternative for both domestic and international travelers. Capsule hotel prices tend to run for about $50 per night, plus "nap rates" are charged by the hour. The attractive combination of having cheaper rates than hotels offer while being more luxurious than hostels has caused demand to surge. Frank Sorgiovanni, head of research in hotels and hospitality in Asia Pacific at JLL, explained that more travelers nowadays, including business travelers to an extent, are being more frugal with their spending and are looking for "affordable luxury" lodging offerings. "They want a room that offers their essential needs, fast Wi-Fi, somewhere to charge their iPads and work from a small desk if necessary. They don’t need a stacked minibar and other ancillary offerings such as day spas or numerous food and beverage options. That’s all usually by the hotel,” Sorgiovanni told Forbes. 

The hotel chain Yotel has set plans to increase the stock of capsule hotels in the region, addressing the issue of Asia Pacific's rising hotel rates. Sorgiovanni said, "The brand Yotel, which is well known in New York and Europe in particular, is about to open in Singapore, which is an expensive city to stay in based on room rates compared to other Asian cities, and later in Changi Airport [Singapore’s international airport] in the near future. This is a new concept that is coming into the market at a new price point, which will challenge some of the older style 3 and 4-star hotels.”

Book and Bed Tokyo, Japan 

Meanwhile, other brands are looking to accommodate a younger demographic of travelers, which the Hong Kong-based capsule hotel brand SLEEEP calls "young urban creatives." This new wave of young travelers tends to be more eco-conscious and aware of personal wellness than older generations of travelers. "The combination of increasing density, long commute and awareness for wellness is leading to a rising demand for quality sleep,” Alex Kot, cofounder of SLEEEP, explained.
The immense flexibility of the capsule hotels has also led to the success of the trending lodging option. On top of charging per hour—as opposed to per night at traditional hotels—these capsules are located in airports or close to city centers. This creates convenient accommodation for backpackers caught in layovers and could come in handy in North America in the coming years. A 2015 McKinsey report stated that business travel in Asia made up a third of $1 trillion in annual spending global. The report predicted that business travel will grow four times as fast in North America. As business travelers have shown a preference for convenience, it's likely the industry will expand as company travel budgets tighten.

Experiential design lends itself to novelty appeal 

Today's capsule hotels are no longer the no-frills, isolating pods of Japan's bubble economy in the 1970s. These updated versions—often called "poshotels"—use new technology and create unique, interconnected experiences to attract travelers. The term—coined by JLL's hotel and hospitality division—describes the pods' “design-led ambiance, with small, often shared sleeping areas with a focus on innovative communal spaces.” 

The pods are especially gaining popularity among millennials, who have gained an attraction to personalization and user experience. The Millennials in Kyoto caters to this rising demand, with IoT technology-powered sleeping pods and co-working facilities for guest interaction and community building. Tokyo's Book and Bed also offers this combination of innovative technology and design, with a direct focus on book lovers. The hotel mimics the design of a traditional library to allow avid book readers to sleep in pods behind full book shelves. As another example, Beijing start-up Xiangshui Space lets customers book quick naps for 30 minutes in futuristic pods for just $2.

Capsule hotels are also crossing over to the upscale and boutique sectors. Tokyo's First Cabin Tsukiji claims its lodging offers the luxury of a "first-class airplane." Tokyo's Ashin Oyada capsule hotel, on the other hand, is also a craft beer brewery and artificial hot spring "within 120 seconds by walk from the nearest station."  

As capsule hotel owners are quickly beginning to realize, staying relevant in this rapidly evolving industry depends on anticipating the diverse needs of their clientele while crafting unique, personalized—and even Instagrammable—experiences.