More property developers turn offices into hotels

New figures, from commercial property analysts Costar, have revealed that more than 25% of office sales over the past year have been by developers looking to convert office buildings into hotels.

The data reflects changes to the commercial market. A mix of employees working from home and net zero targets on ageing buildings have shifted demand for central London office space.

It follows the news, in February, that iconic London landmark the BT Tower would be converted into a hotel, by designer Thomas Heatherwick. And in December, Haymarket House in Soho was sold with a view to converting the upper storeys into a £400 million hotel.

According to Costar, the value of office-to-hotel sales in the UK rose by £386 million in 2023.

Cristina Balekjian, director of hospitality analytics for the company said that the trend was likely to continue: “Greater lower-grade office stock availability in major urban areas has presented opportunities for hotel operators looking to expand their portfolios at knockdown prices. With the national office vacancy rate continuing to rise and expected to reach nearly 10 per cent in 2025, this trend is likely to continue.”

Costar also cites the Whitbread group’s strategy of identifying office buildings that no longer work for their occupiers and can be turned into hotels and mixed-use developments, including New London House in the City.

The appeal of office blocks as hotels also follows an announcement by the City of London Corporation that it would relax planning rules for buildings including hotels and galleries

According to Costar, this may have “helped to accelerate these deal types and increase appetite from investors and operators to develop in the area”.

Read more about this story on the City AM website.