The idea of a development being somewhere you can work, rest and play is as attractive to property developers as it is to those who fund such schemes. But what role do hotels play? Are hotels competing with alternative uses on mixed-use developments or simply appeasing the planning authorities with an employment-generating use?
Typically, the answer has been that they are the employment-generating elements and, as such, are important, even though they may not offer the best value per square foot to the developer. But as they create employment, they are generally looked upon favourably by local authorities and can be used by the developer for planning gain in other sectors.
A hotel will offer a support or amenity service to office and residential occupiers on a mixed scheme. The value of this consideration is difficult to quantify but clearly benefits the developer in securing lets or sales on commercial or residential space.
In the current market, office pre-lets are difficult to come by, and residential developers are, by and large, cautious. In a viable location a hotel operator can offer a pre-let agreement to the developer with an institutional lease in place with fixed rental uplifts and an excellent covenant strength.
Although rents payable per square foot may not be competitive with alternative uses, in the current nervous market a pre-let on part or all of a scheme will be attractive to a developer, particularly where an investor can be lined up to purchase the hotel investment on completion of construction, or even before.
Knight Frank is advising on more than 3,600 new-build hotel bedrooms across the UK and has recently launched its report, Mixed-Use: Art or Science?, which sets out the formula for effectively delivering a mixed-use scheme to the market.