This shift is driven by evolving tenant demands, changing work habits and increasingly stringent regulatory requirements ultimately tipping the balance of existing use values against that of alternative business plans.
Savills research shows that in 2024 over 330,000 square feet of office space across ten buildings in the City of London were acquired with the intention of being converted for hotel use.
A polarised leasing market
The post pandemic world has reshaped how businesses approach office space. Companies prioritising talent attraction and retention are demanding high quality work environments, fuelling a divide in the leasing market. Grade A office spaces, which offer premium facilities, strong sustainability credentials, and are set in prime locations remain in high demand. In 2024, 93% of office leases in the City were for Grade A spaces (6 million sq ft), reflecting this shift.
Conversely, lower grade office stock has faced challenges. As a result, landlords may consider exploring new uses for these assets.
Regulation driving change
Tightening government regulations and business sustainability goals are driving tenants to seek offices with higher environmental credentials. With impending Minimum Energy Efficiency Standards (MEES) for commercial properties, and some occupiers concerns over climate change risks and achieving net zero targets, we have seen an increased percentage of take up in buildings rated EPC ‘C’ or above. Currently, 67% of City office stock has an EPC rating of C or below, highlighting challenges in meeting upgrade requirements.
The planning system is also catalysing this trend. Historically, London boroughs sought to protect office stock, but local authorities now recognise the economic benefits of hotel accommodation and are increasingly supportive of development. Financial Viability Assessments (FVAs) often demonstrate that retaining office use is no longer viable, reinforcing the case for repurposing properties. This shift aligns with trends seen in the US, where hotel conversions have helped revitalise urban areas by bringing new life and footfall to under used office districts.
The advantages of hotel conversions
A recent example is 68 Lombard Street, located in the heart of the City. Originally a bank, then an office block, it proved itself an ideal candidate for conversion, attracting interest from serviced apartment operators, lifestyle hotel brands, and micro-room concepts. This adaptability highlights why hotel conversions are increasingly popular among landlords looking to repurpose office stock.
Hotel conversions also contribute to the local economy and community; supporting surrounding businesses, entertainment venues, and retail shops, creating a dynamic urban environment. Additionally, hotel operations retain jobs within the building, providing high quality employment opportunities. From an economic perspective, hotels generate substantial business rates revenue for local councils and contribute to the 24/7 vibrancy of the local economy, further enhancing the appeal of conversions for both investors and policymakers.
The future
Hotel conversions offer a financially sustainable alternative for landlords amid rising construction costs and shifting office demand. The post-pandemic travel resurgence has highlighted the UK hotel sector’s growth potential, income flexibility, and inflation hedging benefits, attracting global investors.
As London’s office market evolves, repurposing underutilised office buildings into hotels provides a strategic response to market conditions. With strong demand for Grade A office space and challenges for lower-grade offices, hotel conversions address vacant properties and contribute to Central London’s economic resilience and sustainability.
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