Boutique hostels appeal to hip travelers

Hostels, traditionally bare-bones accommodations adored by backpackers on a budget, are undergoing makeovers in a defining travel trend of the year.

At the Freehand Hotel, you'd be forgiven for thinking you were in the wrong place. Elsa Osborne did, and she had a reservation.

"I came in and I just didn't expect it to look like this," Osborne said.

CBS News' Adriana Diaz in the lobby of Freehand Hotel, a boutique hostel CBS News

That's what owner Andrew Zobler had in mind when he designed the Freehand. What looks like a luxury property just blocks off Chicago's Michigan Avenue is actually the Windy City's first boutique hostels.

"We were very interested in coming up with an offering that would really appeal to the millennial generation, and I think they respond to quality," Zobler said.

Known for building and designing opulent hotels, Zobler is venturing into the hostel business. Except he's doing it his way with the "poshtel." When Zobler first heard the term, he thought it was cute. By adding some posh, Zobler is upgrading the traditional no-frills hostel experience.

Locals mix with tourists in the lobby, sitting on plush couches while sipping fancy coffees. Handcrafted tiles line the walls in each bathroom and the bunk beds -- it is still a hostel after all -- solid wood.

"People are really fascinated by the sharing economy ... and I think the translation to the hotel world is you could buy just a bed," Zobler said.

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Hostels have traditionally been a rite of passage for young backpackers on a budget. But travel writer Paul Brady says millennials are now demanding more from the hospitality industry, including hostels. They want bold design, high quality amenities, and locally-inspired ambiance -- all for less.

"You don't have to spend a ton of money on your room," Brady said. "You can save money on your room and then spend that money on experiences in the city you're visiting."

The growing trend is a European import, where hostels are firmly entrenched in the travel culture.

"We are trying to deliver the concept of affordable luxury," said Josh White, chief strategic officer for Generation Hostels, a European pioneer in this niche market.

"We're trying to capture people who are curious, and people who want to experience design and want to experience something local," he said.

Generation's 10 properties, including the one in London, feature lavish common areas, built in part with money saved from sparse bedrooms.

Generator in London features lavish common areas

"That allowed us to then create these fantastic bars or public spaces, cinema rooms, places to do yoga," White added.

But upscale living comes at a price. Poshtels can cost 50 percent more than other hostel options. A bed in a shared room will run you around $50 at the Chicago Freehand. A private room is upwards of $200, similar to other hotels in the area. And one of two penthouse suites? More than $500.

While some may think $500 is too steep for a hostel, Zobler said the quality of the offering is "miles apart" from the competition.

"If you think about it, that's still an enormous bargain compared to what any hotel room would cost," he said.

While hostel living isn't for everyone, especially those seeking solitude during stays, Zobler said the Freehand's social environment is what attracts guests young and old.

"If you want to meet locals downstairs in the bar, if you want to meet other people who are traveling, this is the place for you," he said.

Poshtels aren't just for the millennial crowd, however, as a third of the Freehand guests are over 30 years old.