London’s Capsule Hotels: A Response to Rising Costs and Return-to-Office Mandates
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As the cost of living in London soars, a new type of accommodation is gaining traction: the capsule hotel. Offering a private, minimalist space for around £30 ($40) a night, these Japanese-inspired pods are becoming an increasingly popular option for workers facing pressure to return to the city and seeking affordable alternatives to traditional hotels.
The Rise of the Capsule Hotel in London
Driven by a surge in return-to-office mandates and the enduringly high cost of London accommodation, capsule hotels are filling a gap in the market. According to real estate firm Knight Frank, the average cost of a hotel in Central London reached £265 per night in the third quarter of 2025. In contrast, hotels across Europe averaged 125 euros per night during the summer, as analyzed by RoomRaccoon from over 600,000 reservations across 2,000 independent hotels.
Zedwell Capsule Hotel, owned by Criterion Capital and opened in September, is at the forefront of this trend. Located in the heart of London at Piccadilly Circus, within the historic London Pavilion building, it boasts nearly 1,000 capsules, each measuring 1 meter long, 1 meter wide, and 2 meters in depth – potentially the smallest hotel rooms in the city.
A Unique Accommodation Experience
A recent stay at Zedwell offered a firsthand look at this novel lodging option. The hotel’s design prioritizes functionality and privacy. Guests check in via kiosks and are directed to dormitories – some gender-specific – containing stacked capsules. Each capsule features a light dimmer, clothing hooks, an air purifier, a mirror, and charging sockets. Despite the compact size, the bedding is surprisingly comfortable.
“We’ve formed this sweet spot between the two [budget hostels and affordable accommodation],” explained Halima Aziz, Criterion’s Head of Hotels. “We’re not a budget hostel. We’re not coming in at a £15 rate, giving you a bunk bed in a steel room.” The concept, she added, draws heavily from Japan, where capsule hotels first emerged in 1979 as an inexpensive overnight solution for late-working professionals.
However, the experience isn’t without its quirks. The hotel is still under construction, with scaffolding visible and drilling sounds audible. Additional costs apply for certain amenities, including £10 for a female-only dormitory, £8 for a padlock, and £15 for luggage storage. Despite these extras, the hotel offers a compelling value proposition for those seeking a convenient and affordable base in the city.
The Pandemic’s Impact and the Return to the Office
The rise of capsule hotels is inextricably linked to broader shifts in work patterns and living costs. During the COVID-19 pandemic, many office workers relocated outside of London, capitalizing on remote work opportunities and lower housing costs. A 2021 report from City Hall indicated a likely decline in London’s population, with approximately 210,000 fewer payrolled employees by November 2020. By 2022, CBRE data revealed that 43% of commuters in the U.K. lived over 30 minutes from their workplace, reflecting the higher property prices in central areas.
However, 2025 has seen a significant reversal of this trend, with major companies – including HSBC, JPMorgan, Amazon, Salesforce, and John Lewis – enforcing return-to-office mandates. This shift has left many workers scrambling for affordable accommodation options.
“The cost of commuting from Oxford, Cambridge, city centers that aren’t accessible via the London Underground system, is quite high,” Aziz noted. “Our product is often cheaper than their commute or late-night travel home.” Zedwell currently caters to roughly 20% corporate workers, utilizing the hotel as a convenient “base in the city” for their hybrid work schedules.
A Growing Trend
The capsule hotel concept isn’t limited to London. Similar accommodations have emerged in New York City, with options like sleeping pods by Kama Central Park and Nap York offering short-term stays. As the demand for affordable and convenient accommodation continues to grow, it’s likely that capsule hotels will become an increasingly common sight in major cities around the world.
The appeal is clear: privacy, affordability, and a central location. While not for everyone, Zedwell and similar establishments offer a viable solution for workers navigating the challenges of a changing work landscape and a persistently expensive city. After a night spent enveloped in the quiet darkness of a capsule, one almost forgets they aren’t in the comfort of their own bed, ready to join the bustling throng of London commuters.
