Whitbread move to convert office to hotel could
represent a structural shift in CRE deals.
LONDON
– New London House is a fairly ordinary
looking 1970s office block. Now it is catching the eye as a shining example of
one of the hospitality industry’s most intriguing trends. Old offices in
central business districts are being given new life as hotels.
Whitbread, the Premier Inn hospitality
company, is spending £56.5 million ($68.9 million) on New London House near
Fenchurch Street in the heart of the City of London financial district.
Clients of Orchard Street Investment
Management are the sellers of the near-90,000 square foot freehold property.
It's not a completely new thing: Whitbread
did its first office-to-hotel conversion way back in 1998. It is a strategy coming
into its own with the post-pandemic changes in work patterns and leisure
preferences. Demand is there for hotel accommodation suited to business travel,
for enjoying time off, and a mixture of the two. Perhaps inevitably, there’s a
bit of jargon for it too: “bleisure.”
Mark Anderson, managing director for
Property and International at Whitbread, said, “We are seeing a structural
shift in the London office market.”
Working-from-home behaviors are among the
shifts reducing demand for office space in central locations. Municipal
authority efforts to enhance cultural and other leisure attractions is also
relevant. In this case, the City of London authority has a ‘Destination City’ marketing
campaign designed to promote local history, heritage, arts, culture,
restaurants, cafes, hotels, pubs, and bars to U.K. and global visitors.
Changing preferences around styles of
office space is also relevant. At Whitbread, Anderson spoke of the opportunities
to acquire office buildings “no longer fit for occupier and investor purposes
and to reposition and refurbish them into successful hotels.”
It may be that floor plate sizes and shapes
no longer suit tenants accustomed to open-plan workspaces. Equally, the size
and shape of buildings struggling to find use as workspaces might be well
placed for conversion.
We have a strong track record of using innovative design and development to grow our hotel network in accordance with Whitbread’s commitments to becoming a net zero business by 2050.
Mark Anderson
New London House is a podium and tower
structure close to main line rail links. Whitbread wants to “repurpose and
extend the current building into a hotel-led, mixed-use development with a mix
of complementary uses… together with new public spaces.”
Further support for the office-to-hotel conversions
trend comes with net-zero and other climate priorities. The positive environmental
impact of re-purposing New London House is part of Whitbread’s thinking. Says
Anderson: “We have a strong track record of using innovative design and
development to grow our hotel network in accordance with Whitbread’s commitments to
becoming a net zero business by 2050.”
“We are looking forward to working
collaboratively with the City of London to repurpose New London House and
create a landmark new hotel-led development in a superb location,” Anderson
adds.
It’s not just Whitbread, nor just London,
of course. For instance, the German operator Ruby Hotels is working to convert
a former office building near the Spanish Steps in Rome into a 165-room hotel.
In all, Whitbread spent £546 million ($667
million) on capital expenditure in its last financial year and is on course to
spend another £400-£450 million ($489-$550 million) in the current year. Some
of that will go to maintenance of its current estate, and some will go on development
other than office-to-hotel conversions. It is very likely, however, that office
to hotel conversions will drive Whitbread’s ambition to increase its U.K. room
count from 83,500 to 125,000 rooms.
Whitbread’s 1998 project was at County Hall
on the banks of The Thames river opposite the UK Houses of Parliament. It has
two other similar City of London projects under way at present at Farringdon and
Moorgate. It has clear intentions to do more. It reckons it has both the
balance sheet strength to do more deals and may draw advantage as a buyer
because, it says, it is rare among its peers as it is happy to take on freehold
responsibilities.