Reimagining offices as aparthotels and the rise of adaptive reuse
As landlords and investors struggle to shift office space, aparthotels have experienced a remarkable uptick in interest. We explore how a new trend of adaptive reuse may play out.
When predicting the future, one should look east. While several hours ahead of London, Asian markets are often months or years ahead of the curve. In this region, aparthotels are an established asset class.
In the UK, a foundational change in behaviour has already occurred. Aparthotels are no longer only for business trips. They are booked by couples, families and solo travellers. Branded aparthotels provide familiarity, consistency and, in turn, a sense of comfort. However, they still make up only a small proportion of European hospitality real estate, with funds and investors largely remaining hesitant.
Prerequisite market conditions
Nearly four years on from the start of the pandemic, lifestyles have changed irrevocably. While many business owners were keen to usher staff back into the office, the new “new normal” is a more dynamic approach to business, with a relaxed attitude towards remote working and far less reliance on office space. In 2023, offices were once again the most traded asset class in the UK, accounting for one-quarter of all transactions. Supply is far outstripping demand and, coupled with soaring interest rates, many stand empty.
Even the UK’s most recognisable buildings aren’t safe from this trend. The last building designed by Sir James Stirling after whom the prestigious Stirling Prize is named, No 1 Poultry is a beloved London landmark. But the loan on this iconic office building is being purchased at a discount to face value. From shopping centres and department stores to individual units, retail spaces are suffering a similar fate.
“In some cases, an office-to-aparthotel conversion may be the only financially viable strategy”
- Erel Agmon, Director at EPIC Group
Investor appetite for aparthotels
Commercial real estate investors are increasingly targeting category B offices in need of refurbishment. The underlying value is there to be unlocked, via a redevelopment project and a change of use. Marriott’s portfolio, for instance, includes assets which the brand had converted from stations, courts, schools, prisons and even zoos.
However, the hotel deal flow is currently sluggish with the bid-ask spread suppressing transaction volumes. As investors begin to look beyond traditional structures, aparthotels provide an increasingly tempting proposition.
“Demand in London is at a historic high,” states Erel Agmon, Director at developer EPIC Group. “This is in direct contrast to the current state of the office market.” Erel notes that this demand is far outstripped by the supply of redundant office space. “In some cases, an office-to-aparthotel conversion may be the only financially viable strategy,” he adds.
Capitalising on an existing asset ticks several boxes for investors, including on embodied carbon. Compared with new-build developments, renovated assets – especially deep retrofit projects – can be considered ESG investments.
Recent office-to-aparthotel conversions
Saxbury has already worked across several office-to-aparthotel projects. The Moorgate was previously designated as temporary office space. Comprised of four terraced properties, The Grade II-listed asset presides over the intersection of Moorgate and London Wall.
With Saxbury’s guidance, EPIC Group successfully navigated the transformation project and brought the asset to market. “We developed the property with the objective of creating the best aparthotel in the City,” explains Erel, who believes we will see more of these projects. The team was able to overcome several challenges, including the listed status of the asset, the lengthy planning process, new building controls, and that the shops below continued to trade throughout.
The Moorgate, City of London
“The demand for space is changing”
- Erel Agmon, Director at EPIC Group
Now a 27-key boutique aparthotel, Saxbury advised on the project across feasibility, layouts, planning and market entry strategies before mounting a search and selection campaign to identify a best-fit operator. “Positioned at the top end of its product offering, we have been advised that the operator’s performance is strong,” Erel states.
Saxbury also consulted on the redevelopment of CitE1. An aparthotel on Cannon Street Road in London’s Whitechapel, it too was converted from office space. “Serviced apartment demand has rebounded strongly with higher occupancy compared to hotels,” Saxbury co-founder and Leasing Director Ben Davis told Serviced Apartment News at the time.
However, these projects aren’t only being developed in the capital. Saxbury advised on Platinum House in Milton Keynes, which had previously been converted from an office. Following a second transformation, it is reimagined as a contemporary aparthotel with 65 design-led suites.
Platinum House, Milton Keynes © Your Apartment
Which assets are primed for redeveloping?
“The demand for space is changing,” Erel posits. “Not every building let as an office in the past is suitable for future office use.” Many older offices are of residential proportions, with circulation and fire escape routes unfit for office density. “They may also lack cycle parking and other amenities now expected in offices.”
Equally, not all offices are suitable for converting into aparthotels. The key is to find a well-located property spanning approximately 30,000 to 55,000 square feet with shallow floor plates. Where aparthotels have many internal walls, modern offices tend to have a fully open-plan layout. However, sunlight from one aspect may suffice depending on footprint and orientation.
Erel notes several additional factors including transport links, the ability to arrange rooms around a logical core and the lack of viability for other uses – to create a strong argument for planning consent. Location is an important consideration too, with future projects likely to favour major cities due to increased development costs.
The process itself sees a developer obtain consent for change of use to a C1 aparthotel. While the planning process is far from simple, the City of London is looking to relax its rules to encourage alternative uses for secondary buildings increasingly at risk of obsolescence.
Planning for office-to-aparthotel projects is often easier to secure and more economically viable than residential conversions, which favour larger assets outside of city-centre locations. Once let to a strong operator, lucrative long-term returns can be generated from repurposing these declining assets.
Professional development advisory
From feasibility and funding to exit or operator search, Saxbury is adept at transforming buildings to produce investable assets. As the UK’s leading aparthotel consultancy, we pair elevated advice and a global contact book with unparalleled service for developers and investors alike. “There is no doubt that Saxbury played a critical role in successfully delivering The Moorgate aparthotel project,” Erel adds. “We have not seen this level of expertise and insight anywhere else in the market.”
Lean on the advice of aparthotel development advisors. Get in touch with Saxbury to find out more.