by Kerrylea Webb
The proposed redevelopment of London's County Hall sparked fresh controversy last week when Shirayama Shokusan, the Japanese property developer, announced it was to abandon plans to convert part of it into a hotel.
The news came as a shock to Richard Branson's Virgin Hotels group, which signed a deal in March for a 50% share in the lease and management of the 570-bedroom hotel.
The reasons for the change of heart, according to Kenzo Honda, new managing director of Shirayama Europe, were cultural and commercial.
"We have concluded that the hotel plan is not ideal at all if we are to keep the identity of the building as the community centre of London," Mr Honda said.
Instead, the company now plans to establish a "Pacific Asia Centre" with conference, leisure and entertainment facilities. This would be a "semi-permanent space for exchange of information" between Pacific Asian countries and Europeans, Mr Honda said.
Virgin is still awaiting an urgent explanation of Shirayama's announcement and has hinted it may take legal action.
"We came into this deal on the basis that together we were going to create one of the best hotels in London and the capital's most exclusive leisure complex," said Will Whitehorn, Virgin's corporate affairs director.
"We still believe in the project and we are very keen to go ahead. We have a legally binding contract which we expect Shirayama to honour."
For the centre to go ahead, Shirayama is likely to face a further public inquiry to obtain planning permission.
The dispute came at the same time as Virgin Hotels announced the formation of a new company, Virgin Hotels Marketing. It will effectively be a sales, marketing and purchasing consortium for hotels that are similar in style to those owned or managed by Virgin.
Hotels managing director Michael Herriot pointed to Virgin's success in managing Welsh Water's three hotels since April, which he attributed to investment made in a sales team operating nationally and in the USA.
He said that sales for the three hotels in the first six months under Virgin management had increased by 37.5% on the previous year.
"We feel we can offer a service that other consortia do not and a brand image that is well known for quality and service," he said.