The hotel and hospitality sector has been one of the sectors hardest hit by the COVID-19 pandemic. The industry is a hugely important part of the macroeconomy and many businesses will prosper once the world starts getting back to a new normal. However, in certain cases, due to forced closures and pressures on cashflow, Colliers International argues that economic hardship, which is often a key variant in the planning process, may and should become a far more important and immediate factor for some hotel owners, who may see redevelopment as a way to recoup their investment or minimise their losses. Colliers says that this alternative use route could, in certain circumstances, be a long-term solution which will still be relevant and helpful even after the crisis abates.
“Over the past few months, hotel owners have been focussed on the immediate and harsh challenges posed by the lockdown. Many are now looking to their reopening strategies and the prospect of a bounce back for hotels is very welcome news,” said Paul Barrasford, director, Hotels Agency at Colliers International.
“Unfortunately, a few hotel owners are faced with the conundrum of wanting to reopen but knowing that unless something close to previous revenue is achievable, then there are significant risks in doing so. Unable to wait for a return to re-pandemic operating conditions, looking at redevelopment options may be a far more realistic and rewarding route for a few hotel owners to optimise the equity from their investment. A relaxation of planning restrictions could be just what they need and would boost the economy and provide much needed housing.
“Historically, most owners seeking a change of use have to prove it was not unviable as a hotel. This often required marketing a hotel for sale for an extended period of time, sometimes as long as 12-months With acute cashflow pressures put upon hotels by Coronavirus, it would be greatly welcomed to see planning authorities relax some of the legislation around redevelopment of hotels for alternative use; not least the time taken to prove any unviability.
“We are expecting many hotels to bounce back from this pandemic stronger and reinvigorated, in particular, the UK ‘staycation’ market which is due to rebound sooner and stronger than the rest of the sector, and in parts of Europe where the outbreak was considered under greater control than the UK. We anticipate a rebound in investor sentiment will follow a similar trajectory to that of consumers and as the country gets moving again, so will the market for hotels.
“However, until a vaccine has been found and the spread of the virus has abated, there are many changes a hotelier will need to implement to abide with social distancing measures. Hotels which may theoretically work well under social distancing guidelines (e.g. limited service hotels) will face the added challenge of significant changes to consumer behaviour. Not least attitudes to travel and socialising in hotels, but also reduced spending power will reduce some leisure and corporate clientele spend as a result of the economic downturn.
“Colliers has sold plenty of hotels to residential developers in the past and is continually asked about hotels that might suit conversion. The downside for hotel owners is that such interest is normally subject to a lengthy planning process which can jeopardise the trading performance i.e. their guest clientele become concerned about the long-term existence of the hotel and bookings diminish. The pandemic has already caused that change in consumer behaviour so now would seem an opportune time for some hoteliers to consider whether redevelopment to alternative use is a better and more profitable strategy than reopening as a loss-making hotel; particularly whilst they remain closed for business.”
The benefit for local authorities
For many local authorities, Colliers says that repurposed hotels could provide a solution for their requirements within the Class C categories. For example, affordable housing, houses in multiple occupation (HMO) and care homes.
Paul Barrasford added: “We had already seen councils, residential and senior living developers buying hotels before the COVID-19 outbreak and the demand for these uses will remains long after the pandemic has subsided. Hotels which may no longer be viable due to the current situation or do not have the resource to sit out a recession may present a ‘win-win’ solution for both owner and buyer /end user; whether the latter is privately or civically funded.
“Sadly however, there will be some that will not re- emerge as viable operations. Sympathetic changes to the planning laws may help some hotel owners, which are already struggling from forced closure, to avoid incurring further, considerable losses as result of apathetic planning laws designed for a very different time. Hopefully such changes can be added to the raft of government support measures already in place for commercial property owners.”
Comment on Planning
Anthony Aitken, Head of Planning, at Colliers International said: “ Extending the permitted development rights, even if only for a temporary period of three years or thereabouts, to allow for hotels (Use Class C1) to be converted to Dwelling Houses (Use Class C3) has inherent planning logic.
“It is worth remembering that many hotels were originally built as residential accommodation and all that would be occurring in many instances is restoring these properties back to their original planning use. We have a housing crisis, with a chronic lack of housing supply, which is particularly acute is the south east and particularly in London and anything that can augment this acute shortage should be grasped, to also assist the wider economy recover.
“We have seen Offices (Use Class B1a) to Dwelling House permitted development right, which were originally temporary, become permanent, with prior approval being required to ensure there are no infrastructure impediments relating to contamination, highways, transport, noise and flooding. The planning sense of a similar provision for hotel to residential is inescapable, as hotels are invariably located within our urban areas, often in highly accessible and sustainable locations.”
Comment from a residential perspective
Andrew White, Head of UK Residential at Colliers International added: “Fluidity in the use classes is vital to allow property owners the ability to change buildings to those that have not been affected as much by COVID -19. Residential property is still very much in demand and if logic prevailed, the UK Government could free up empty built hotels that may well never return to their original use; perhaps a permitted development from hotel to affordable housing, which would require a thoughtful conversion as well as to specific design guides adhered to by Housing Associations.
“In the last financial downturn, areas such as Bayswater, in London, which were saturated with poor quality hotels, were converted into residential properties via a more relaxed planning policy allowing developers to work with the local authority to transform the area into a more desirable environment for the local community.”