Over a quarter of office sales made in the year to March have been from buyers who wish to turn the buildings into hotels, offering a lifeline for London’s downtrodden commercial property market.
The data, by Costar shared exclusively with City A.M, comes amid a difficult time for London’s office market.
A mixture of work-from-home practices and net zero targets have meant many lower grade workplaces are no longer desirable for future tenants.
This comes after London’s iconic BT Tower was bought up earlier in the month – and it was announced it would become a hotel.
Many older offices across the capital are unable to meet carbon neutral targets, meaning best in class buildings have become more desirable.
Employers are also downsizing due to hybrid working practices creating surplus space.
Costar said office-to-hotel sales volumes in the UK increased by around £386m in 2023 up from £55m in 2022, accounting for four per cent of total office transaction volumes.
Cristina Balekjian, director of hospitality analytics at Costar Group, told City A.M: “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.”
A number of high profile deals across the capital have highlighted this trend.
Last December, property tycoon Asif Aziz,bought Haymarket House in Soho, with plans to convert the upper floors into a £400m hotel.
More recently, London’s iconic BT Tower was sold to a US hotels giant MCR Hotels for £275m – with the iconic structure to be turned into a Thomas Heatherwick-designed hotel.
Balekjian explained that owner-operators have spent approximately £500m since 2019 on transforming spaces.
She said: “Whitbread, for example, has been a particularly active operator on this front, having a strategy to identify office buildings which no longer serve occupiers and could present an opportunity for one of their brands.”
“Earlier this year, the group acquired an office redevelopment opportunity with a 140-room hotel planning consent in Harrow for approximately £6m, expected to break ground later this year and proposed for opening in 2027 as a Premier Inn.”
She added: “Similarly, last September, Whitbread acquired the former office building, New London House in the City of London, for approximately £56.5m, with the intention of repurposing and extending the current building into a hotel-led, mixed-use development.”
Meanwhile, the firm flagged the City of London as one of the main areas within London where activity for office-to-hotel acquisitions has increased.
The City of London Corporation announced last year that it would relax planning requirements for uses such as hotels and galleries
Costar said this may have “helped to accelerate these deal types and increase appetite from investors and operators to develop in the area”.