Courtesy of Galaxy Stars Limited

A capsule bed manufactured by Hong Kong company Galaxy Stars Limited.

Forget bunk beds. In Hong Kong, capsule hotels just might be the next big thing for budget travelers.

Hoping to capitalize on what seems like an ideal conundrum — a dense metropolis where both occupancy rates and per-night prices are high and centrally located land to develop new hotels is scarce — Galaxy Stars Limited, a local company, has started offering pod-beds for sale.

The company’s kitschy showroom has two walls lined with double-decker layers of the futuristic 6-foot long, 3-foot wide sleeping units. Within each one are flashy touches like strips of colored lights as well as functional features like power outlets, a fold-out flat-screen TV, a little ledge for a laptop and a small air conditioner — crucial in humid Hong Kong. 

Eric Wong, founder of Galaxy Stars, says each hotelier can customize the pods and that that he'll rent out the beds to franchisees for about $250 USD a month, but expects them to make a return of $1,300. Wong estimates that hoteliers would charge guests about $30 USD a night.

Based on the inquiries he's gotten since making the announcement earlier this month, Wong is optimistic that there will be a capsule hotel in Hong Kong within six months. Though, any capsule hotel would have to seek approval from Hong Kong’s fire department.

In a city where a tiny, basic hotel room can easily go for $150 a pop, many visitors — from backpackers to the mainland Chinese — prefer less expensive options.

The most notorious of these guesthouses are in Chungking Mansions, a 17-floor complex located in Tsim Sha Tsui on the southern tip of the Kowloon peninsula. Built in the 1970s, Chungking Mansions is an odd mishmash of residential apartments, offices, hostels, Indian restaurants, African wholesalers and South Asian merchants vending everything from Bollywood DVDs to mobile phones.

With a preponderance of hawkers in the lobby and rooms spread over many floors, the atmosphere at Chungking can feel seedy, dirty and disjointed. It is safer than it might seem, though, given that crime in the area has dropped in recent years.

The Chungking scene is a far cry from the sleek lines of capsule hotels, which have established themselves as budget mainstays in Japan and across Asia. In Japan, where a sparse hotel room costs even more than in Hong Kong, capsule rooms run about $50 per night in Tokyo, and are cheaper elsewhere. For hotel owners, margins are high because they can fit more guests in the same area, so some of that savings trickles down to the room rates.

Johan Svanstrom, vice president and managing director of Hotels.com in Asia Pacific, says the arrival of a capsule hotel to Hong Kong would diversify an expensive market. Visitor arrivals hit an all-time high in 2011, which led to a 30 percent rise in room rates last year, according to Svanstrom.

"[Even] mid-range [hotels] are expensive. All of the range is expensive," says Svanstrom. "We don't need more five-star hotels charging HK$3,500 to HK$4,000 a night. That's not going to draw the masses in terms of tourism."

Though Hong Kong hasn't felt many ripples from the world's economic slowdown, it's unlikely that sky-high prices will remain palatable. Adds Svanstrom, "It's a great boom time, but people are going to start voting with their wallets."

The capsule model has launched in Singapore, where it's viewed as budget accommodation with a sense of aesthetics. At Matchbox The Concept Hostel, which opened in Singapore last year, the rooms are bright and airy, and though the pods are small, the communal spaces and other amenities like laundry and free Wi-Fi make guests feel less like grungy hippies and more like trendy travelers.

"Many backpacker hostels in Singapore are going upmarket, in response to 'flashpackers' who have bigger budgets," says Cassandra Kong, Matchbox's marketing manager. "I believe this concept will be successful wherever there is a high demand for budget accommodation enhanced with thoughtful design and luxury perks."

Last year, more than 40 million tourists visited the territory, and travel industry experts say a number of developments will only bring more tourists to Hong Kong, which is Chinese-run but politically and legally independent. A new bridge connecting Hong Kong with nearby gambling hub Macau as well as Chinese coastal city Zhuhai is in the pipeline, as is an expansion of the airport and the construction of a high-speed rail line that links up with China's much-vaunted network. Plus, there's a brand-new cruise ship terminal set to open in 2013.

"Tourism growth will be very strong, especially from the affluent Chinese from the mainland," says Stephen Ho, Starwood Hotels and Resorts senior vice president for acquisitions and development in Asia Pacific. "Hong Kong should also be diversified, to tap into other countries for tourism growth [to] ensure that we don't over-rely on the Chinese market."

In addition to the droves of mainland Chinese visitors and typical backpackers from the U.S., Europe and Australia, there is also significant demand from commuters who work late and need a place to crash as well as those who require short says on either end of a long train or boat journey that originates in Hong Kong. It seems like a win-win: capsule hotels can simultaneously maximize profit in a space-starved city and offer a clean, secure substitute to Chungking Mansions.

"At the moment, other than in Japan, capsule hotels are seen perhaps more as a novelty within the hospitality industry," says LUXE City Guides' publishing editor Grant Thatcher, "but with prices ever rising I see no reason why it shouldn't become a full-fledged trend."

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