The conversion of properties from other commercial uses into hotels is a topic that’s gaining a lot of traction at the moment due to factors such as ESG concerns and the prohibitively high cost of ground up development.
Kate Wallin, director, development UK & Ireland at Marriott explains that the cost of construction, layered in with the cost of debt means it’s a challenging marketplace right now to make any new build project stack up, noting that 60 per cent of Marriott’s UK and Ireland pipeline is focused on conversions and adaptive re-use.”
Retail spaces and office spaces are all ideal assets when considering conversion into hotels, James Twomey, director at Reardon Smith Architects adds, stating “The plight of retail has been well documented with shopping centres and department stores and the plight of the office market is well-documented in terms of older buildings not meeting ESG standards.”
In addition, the trend of more and more people working from home means there’s opportunity to take these office blocks -some of which are lagging behind in terms of sustainability – and turn them into hotels as tourism continues to boom post-pandemic.
What to consider
But what are the considerations when assessing these conversion and adaptive re-use projects?
Top of the list is financial viability, experts stress, noting that this can depend heavily on the location of the asset.
“Financial viability in the city of London, for instance, is undoubted as the values in the hotel sector are superb. But when one gets into more secondary cities, then there’s a challenge and there are certainly plenty of cities where it's not viable,” says Andy Jansons, managing director at Jansons Property.
However, experts advise that early collaboration and communication between all parties can expedite processes, reduce timescales and help a project be more financially viable.
Wallin says another key issue is how the lending community is responding to conversion and adaptive reuse projects as she notes some nervousness due to the uncertainty associated with such projects.
“Where the challenge comes in on adaptive reuse with lenders is that they don't know what's going to be uncovered. A good example was in an Autograph in Krakow which used to be a monastery; as part of the excavation works, they discovered 6000 bodies and overnight there was an 18-month delay in opening that hotel.
She adds: “Obviously, each project has their own merits and more historical assets come with more cost and less certainty. But lenders are looking for large contingencies as part of their underwriting. And then if we look at conversions, it's equally a difficult story if you're taking a hotel with a poor historical performance and you're saying you want to throw a load of capex at it, rebadge and reposition.”
However, Twomey notes that although older, heritage assets come with their own sets of challenges, the heritage element can be turned into a positive as strong heritage narratives lends worth to the building story.
Ian Duncombe, board director at chapmanbdsp agrees, adding: “People love to stay in hotels with a rich history and you have a building with a rich history, turning it into a hotel means you're enhancing and extending the story about that building. There are fantastic examples of buildings with huge historical character and diverse variety of use that make fantastic hotel buildings. So each case needs to be considered on its own merits.”
The next challenge on the list is planning, with experts noting that while local authorities are adopting more of a commercial mindset and being more proactive when looking at adaptive re-use projects, getting through the planning process can still be a bit onerous.
“The planning system is broken and local authorities are getting away with murder in terms of responding timescales. Only about 20 per cent of planning applications are now actually considered in the 13-week statutory period and that is the biggest restraint on developments right now across all sectors,” Jansons says.
Twomey adds: “You can tick predominantly all the boxes but planning can still take years. It would be far better for the industry and the economy if that could move a little faster.”
Navigating the physical
Looking into the practical aspect of converting the physical building, Jansons says important considerations include the layout of the building and lighting.
“When we look at buildings for conversions, the first thing we look at is floor plate and if it works for a hotel layout. The next thing is light; where are the windows, are they enough, do we have to rearrange the building?
The challenge with department stores is getting natural light into them because quite often they're in the middle of the high street with buildings either side. If you can go upwards in the shopping centre, perfect but if not, it will be a struggle unless you can get a building within a land adjacent to improve the room numbers.”
Wallin says there’s also room to be creative to deal with such issues. “We’re not big fans of windowless bedrooms but with clever and smart design and lighting for example, we're able to put rooms in basements and create light wells.”
The environmental factor is a key benefit to embarking on a conversion/adaptive re-use project. However, Duncombe stresses the importance of also paying real attention to embodied carbon throughout the conversion process. The decisions made - from façade retention to energy performance - should align with a net-zero vision.
“Otherwise, some of these environmental advantages could very easily be offset through big interventions that you decide to make which have a huge amount of associated embodied carbon. The embodied carbon story needs to inform the decision-making process all the way through. In addition to embodied carbon, operational energy should be a key driver.”
Looking to the future
While there are a lot of considerations and challenges, Kate is encouraging, noting that surmounting these challenges can lead to amazing successes.
“When I look at some of the assets that we’ve converted in our portfolio, we have fire stations, courts, zoos, old schools and prisons; it’s endless and it really does add to that guest experience.”
Twomey adds: “Adaptive reuse is here to stay and it's the responsible thing to do. To the owners, there are creative teams out there that can safeguard and give you a value for money. To the brands, it's only a plus because you'll end up with an even more exciting portfolio.”
Moving forward, Duncombe stresses the importance of not doing the bare minimum when converting other uses into hotels.
“Make sure that these conversion assets make a genuine contribution to our net zero objectives overall. Push the boat out and make sure we're future proofing these assets for the next 20 to 30 years.”