Why the hotelisation of offices will be a major opportunity for investors

The hotelisation of offices and workplaces will be a major opportunity for hospitality investors in the coming years, according to a keynote panel of industry leaders at Adjacent Spaces at IHIF 2023.

In response to the drop-off in regular commuting and 9 to 5 working patterns, major employers with unused office space will be looking at providing additional amenities - such as fitness, wellness, F&B and accommodation - to incentivise their employers to come into work, as well as attracting external customers.

This trend represents an opportunity for hotels and brands, said hospitality strategist and panel host Matthias Huettebraeuker.

In recent years, in parallel with the rise of co-working brands, several hotel groups have created designated co-working spaces and benefitted from bringing locals into their properties.

Now, in reverse, it is office premises that are seen as the new location for hotel rooms, as real estate owners find fluid and innovative solutions to changing circumstances.

While some smaller businesses have abandoned their offices altogether, the volume of employees working in offices is still relatively low, and most city centres have millions of square metres of commercial space that is unused.

In the UK, for example, office occupancy averages around one third compared to 60-80 per cent before the pandemic, according to Remit Consulting.

“Office space is a real opportunity for hotels and brands because of the changes and shifts in work and play. Here is prime real estate with vacancies increasing. We don’t think it’s an overstatement to say the biggest opportunity will be having these people co-exist. Office moving into hospitality is the next big thing,” said Shafi Syed, global head of development and acquisitions, Equinox Hotels.

The panel continued to outline the advantages of mixed-use operations, which include increased revenue and operational efficiencies.

While business travellers and tourists do not traditionally mix with locals, adding health clubs and co-working spaces to hotel rooms leads to positive interactions, the panel said.

Michael Struck, CEO & founder, Ruby Hotels Ltd, said: “The consumer offering becomes stronger. Workspace members love the fact they are around hotel guests. The hotel guests say: ’Cool. Here we are with the locals.’ With the emotional benefit of being with like-minded people, it makes the operation so much more resilient.”

Mixed use developments also give owners and operators the benefit of different payment models, such as subscriptions and advanced payment.

Combining different uses in one location is viewed positively by asset managers. Elena Ladisova, vice president of portfolio management real estate, Brookfield Asset Management, said: “The other uses compliment the hotel rooms and they create a virtuous circle. They drive RevPAR by offering something unique, and more people want to be there, creating higher market share. It’s a real alternative to the traditional way of seeing the real estate.”

Trey Shores, principal, Pied-a-Terre by Ace Hotel, described the decision-making involved in carrying the identity of the Ace Hotel, known for its buzzy public spaces, over into Pied-a-Terre by Ace Hotel, a new extended stay, work-from-anywhere brand. “How big are the rooms? Do you need a washer/dryer? How big is the kitchen?”

In the end, the brand decided on 70 per cent of rooms with kitchens and 30 per cent without. Shores said: “It’s driven by the real estate owners who want the yields. Extended Stay benefits from higher yields and better margins and fewer staff, so we’re getting the rate to justify putting in the kitchens.”