From grey to guest ready: The rise of office to hotel conversions

London’s commercial real estate market is undergoing a quiet but fundamental shift. As hybrid working continues to disrupt traditional office demand, many landlords and developers are seizing the opportunity to reposition underperforming assets into hotels and aparthotels. This trend is opening up a complex and compelling space, one where planning, ESG, tech, branding, funding and operational structuring all collide. But amid the opportunities lie significant legal risks that need to be understood and navigated with precision.

Why office to hotel conversions are gaining ground

• London still faces a shortage of hotel rooms with an estimated 15,000 rooms remaining out of commission due to long-term government contracts agreed during lockdown.
• Office demand is lagging as hybrid working and ESG requirements have rendered a large portion of Grade B office stock obsolete or uneconomical to refurbish. Approximately 40% of central London offices offered for sale in the past 18 months have been acquired for hotel or aparthotel redevelopment.

Post Covid, guests are coming back and they want options. Operators and investors are looking for new formats, flexible branding and localised experiences, especially in fringe or transitional districts.

Key areas to get right early

Despite strong investor interest, almost half of projects that secure planning permission do not get built. Here are the key points to consider for office-to-hotel conversions:

Planning and conditionality

The planning process can be complex and lengthy and it presents a significant hurdle. Planning risk is real and consents often come with conditions. The London Plan continues to discourage the loss of office space unless robust viability assessments demonstrate redundancy. Build enough time and flexibility into your acquisition contracts.

Development risk

Converting an existing building into a hotel is often more cost effective and time efficient than building a new one though the specific cost depends on factors like the building’s condition and the extent of the renovations needed. Construction costs on hotel conversions need to be carefully considered and development obligations in the sale and purchase agreement or lease need to be tightly drafted.

ESG is no longer optional

Sustainability is increasingly contractual, not just aspirational. Passive House, BREEAM or whole-life carbon compliance will often be expected by funders, planners or future tenants. Make sure your contractor and consultant agreements reflect this from day one. These obligations will be embedded in construction contracts, development agreements and warranties. If you are a tenant occupier, you will also need to understand how these features impact service charges, repair and maintenance obligations and alterations.

Lease or hotel management agreement (HMA)?

If you are a hotel brand or operator, consider whether you are taking a lease or entering into a HMA. Each model has different implications for control, responsibility for capital expenditure and long-term flexibility. In either case, you will need to:

• build in clear brand standards and refurbishment cycles
• allocate risk on compliance with net-zero or EPC targets
• ensure break rights, performance tests and commercial terms align with your growth strategy.

Technology and data

Hospitality is no longer just about beds and breakfasts. It is about digital infrastructure and guest experience. Almost 53% of hotel guests now expect to manage their stay independently via smartphone. Keyless entry, automated check-in and personalised guest journeys are now standard (albeit there is inevitably a variance between budget and luxury hotels). This means your legal structure must address not only tech procurement but also data protection, cyber risk and ownership of guest information.

Funding

Conversions rarely rely on one source of capital. Most are structured using a blend of equity, debt, operator contributions and in some cases forward-funding from institutional buyers. Be aware that funders are now scrutinising exit routes especially given that around 50% of consented hotel schemes do not get built.

Prioritising food & beverage as a revenue stream

F&B is often the underperforming component of hotel business plans. However, when designed well and aligned with planning conditions, restaurant and bar spaces can drive significant value. In areas with match-day or event driven footfall (such as hotels near Wembley Park, Queen Elizabeth Olympic Park and O2 Arena) premium rents and higher customer spend are achievable. Planning conditions should be negotiated early to allow for flexible ground-floor use, extended hours and outdoor seating, where appropriate.

Summary

Office-to-hotel conversions offer a compelling opportunity to address London’s chronic shortage of visitor accommodation. But success depends on more than just changing signage and a cosmetic makeover. They demand a careful balance of commercial vision, operational foresight and legal structure. If you are planning a conversion or considering an investment in this space, engage your legal advisors early and build the foundations properly. It’s a market worth getting right.

Contact our corporate occupiers team for further help and advice.

This article was published in the July edition of Property Perspectives.

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