Investing trend: office-to-hotel conversions

Investors are looking at converting CBD office buildings into hotels to overcome a shortage of tailor-made premises on the market.

Research from Colliers International shows hotel values are rising, compared with B and C-grade office space.

Colliers International Managing Director of Hotels Stephen Burt said well-located office buildings with smaller floor plates and poor lease tenure offer potential for hotel conversion.

“Hotel investors clearly have a preference for existing stock but there is presently a lack of hotels for sale so they are being forced to look at alternative options,” Mr Burt said.

He said conversion of office spaces was particularly appealing in Brisbane and Sydney, where vacancies for non-premium offices had coincided with rising hotel values.

“These rising values have been offset partially in the last six months in certain markets impacted by the slowdown in the mining sector and reduced government spending,” he said.

Conversions are already underway on a 12-storey former office building at 34 Hunter St in Sydney and at 80 Albert St in Brisbane.

Mr Burt said two heritage buildings being offered by the NSW Government in Bridge St, Sydney, would also be a good test of the office conversion market.

Colliers International figures show hotel sales in Australia are at their strongest level since 2007, thanks to interest from sovereign wealth funds and global institutional investors focusing on the Australian tourism and hospitality sector.