The fast-growing budget and limited service hotel sector is not only booming but forcing the big hotel chains to become more innovative to stand out from the crowd, claims a new report.

The Hostel and Budget Traveller Market in Europe - Gaining Momentum published by hotel consultancy HVS, outlines the fact that the larger hotel companies such as Premier Inn and Tune Hotels are rapidly moving into this sector as they try to keep ahead of competition and claim a share of the low cost accommodation market.

“Economic conditions over the past seven years have lead to a polarisation of the hotel market – with the limited to select service segment gaining traction at the same time as the luxury and full service market has been squeezed,” said Harry Douglass of HVS.

“The vibrant hostel segment now presents the consumer with more options and the investment market with more considerations. As a result, transaction activity is particularly healthy in this sector and likely to continue.”

The report details a range of global activity including Chinese travel company Jin Jiang International Holdings, which has recently acquired Starwood Capital’s – Louvre Hotels the second largest operator in Europe with several budget hotel brands. Meanwhile, Accor is investing in additional hotels across Europe, and Goldman Sachs has acquired the Grove Travelodge portfolio in a joint venture worth £500m (US$783m, €630m).

In addition, US real estate investor Invesco has spent €60m (US$74.5m, £47.5m) on a 23 per cent stake in Generator Hostels and intends to increase the portfolio to 20 properties by 2018, starting with openings in Paris, Rome and Amsterdam next year.