THE slump in the commercial property market, combined with a shortage of hotel bedspace in certain locations, has made the conversion of former office buildings into hotels a viable proposition, particularly in London.
"It is generally recognised that London needs another 10,000 bedrooms," says David Rugg, chairman of property agent Christie & Co. The pressure for new stock is, therefore, acute.
This is exacerbated by the scarcity of land for new development in central London and the reluctance of some local authorities to grant planning permission to develop new sites - Westminster, for example, has a notoriously restrictive planning policy. This means that cost factors are not always the main impetus behind London conversion projects.
Interest in acquiring commercial property for conversion has been so great that agent Knight Frank & Rutley (KFR) has set up a special unit solely to deal with potential conversion projects. Stephen Potel, head of KFR's international hotel division, points out, however, that this unit can also incorporate alternative use projects outside the hotel market.
KFR, confirms Potel, is looking at properties in the City and Holborn area of London. The agent was involved in the sale of the former Pearl Assurance head office - Chancery Court, High Holborn - to Malaysian-based investment company Wringfield. The plan is to turn the building into either a 360-bedroom hotel, or 200 serviced apartments.
Wringfield is not the only Far Eastern-based company to be interested in conversions. Singapore-based Scotts Holdings owns and operates the Ascott Mayfair apartment hotel at 49 Hill Street.
Vice-president Europe, Meinhard Huck, says the company is now looking at offices on a site in the West End of London that will, he hopes, convert into 190 apartments.
"A lot of Far Eastern companies are cash-rich and want to invest in London," explains Charles Human, associate director at Hospitality Valuation Services, "but existing hotels rarely come on the market."
The perceived wisdom is that conversion is more economically viable than building from scratch. But Human sounds a note of caution: "I am dubious that the structure of many office buildings will allow for an economic conversion. If all you are doing is retaining a facade, then that can be more expensive than starting from new."
Robert Chess, director of licensed leisure and hotels at agent Chesterton, agrees: "You can easily spend between £1.5m-£4m on the purchase price and £3m-£6m on conversion for a 125-bedroom, four-star, central London hotel," he says.
"And it is a historic truism that the equivalent, if built, could cost £10m-£12m," he adds. In other words, it is roughly the same cost, although Chess emphasises that these figures are hypothetical and that it is difficult to generalise.
Of course, the eventual star rating of a hotel will have a bearing on the conversion costs; expenditure on a budget hotel conversion is obviously not going to be as great as that on a four- or five-star property.
To begin with, companies looking to develop a top-of-the range hotel would probably be more careful about location. Huck emphasises that Scotts Holdings "would not buy in an undesirable area". And a purchase price in Mayfair is always going to be greater than the equivalent in Holborn.
Accessibility, however, is important no matter where a proposed development is. Holborn, where many agencies - including KFR, Chesterton and Christie & Co - are looking at former-office properties for prospective clients, has a good access infrastructure both to the West End and the City. In addition, much of the area falls under the control of Camden Council, which is seen by agents as being more open to granting planning permission for hotel conversions than its neighbour, Westminster.
Location is equally important outside London. Bill Forbes, managing director of Surveylink Projects, the property company that developed the budget Charing Cross Tower Hotel in Glasgow and owner of its operator, Tower Hotels Group, says his company's policy is to locate inner-city travel lodges near key rail and road points.
"Our ideas are about 100-years-old. Offices are often built in central locations and that is why they are good to look at in terms of conversion," says Forbes.
The Charing Cross Tower Hotel is on the North Glasgow Electric Rail Line, two minutes from the central area of Queen's Street and close to the motorway link to the city's airport. The hotel, owned by Westmoreland Properties which built it in 1974 and leased it back to Tower Hotels as operator, was formerly the offices of shipbuilder YARD (Yarrow Admiralty Research Division).
Budget hotels such as Glasgow's Charing Cross need to keep conversion costs as low as possible and there are certain key elements in building structure that can help to limit expenditure, given that a building is not going to be gutted.
importance of light
Light is an important element in a hotel bedroom's design and so a sufficient number of window spaces, in the right configuration, in a prospective conversion can help reduce refurbishment costs. Offices built in the 1960s and 1970s, which comprise the majority of commercial property on the market for conversion, often have large window frontage of the right height.
Clive Pedlar, senior building surveyor at Christie & Co, estimates a minimum height of 8ft is necessary for a hotel room no matter what the star rating. He adds that the height between structural slabs ideally needs to be in excess of 9ft to feed in services such as plumbing.
Offices built within the past 30 years also tend to have the advantage of being open-plan with fewer load-bearing walls than the equivalent 1930s buildings. This means that partitioning into bedrooms is a straightforward and, therefore, more economic process. A standard bedroom size, Pedlar estimates, would be about 400-600sq ft.
The width of a prospective conversion building is also important. Most hotel rooms are placed on either side of a central corridor. This is so rooms have a view looking outwards from the hotel on one side, or inwards - preferably over a central courtyard - on the other. Pedlar estimates that an access corridor would need to be 4ft wide at the minimum, but preferably 6ft. A building with a floorplate that would accommodate both corridor and rooms is therefore necessary.
Another key element, says Pedlar, is an area that will convert easily into a hotel reception foyer. This needs to be at least 100sq ft if it is to contain a seating lounge.
Centrally placed lift-shafts are also a benefit because although the lifts themselves may have to be replaced, the shafts can be reused. Pedlar adds that inserting shafts through concrete flooring can considerably increase their installation cost.
If a conversion is to retain only a facade, then the above do not apply. But Pedlar points out that even if money is not necessarily saved on a conversion project, then time is. This can be weeks or months depending on the amount of work involved.
While conversion of office space may not always be a cheaper alternative to new hotel construction, it is often a short-cut to getting a hotel up and running and therefore offers a quicker return on the investment. n