Turning old hotels into homes may ease housing crisis

  

  

Michael BlebySenior reporter
Oct 30, 2023 – 5.22pm

At least one-fifth of Australia’s near-2400 strong hotel stock is more than 20 years old, offering a potential source of buildings that could be converted to residential use more easily and cheaply than vacant office towers, architects and real estate firm JLL say.

Hotel facilities need regular refurbishment to keep up with the market and a better – and more cost-effective – use for many owners could be to convert them to residential use, most likely build-to-rent, student accommodation or even aged care, architect and Fender Katsalidis partner Rosie Morley said.

We need to consider the full lifespan of buildings: Fender Katsalidis partner Rosie Morley. Elke Meitzel

“Once upon a time commercial was where all the money was at,” Ms Morley told The Australian Financial Review.

“Now we’re seeing residential really being the place. We need to look at all buildings – what can they be over their lifespan? Hotels are a great foundation to diversify into residential or BTR. Or build-to-sell if you want to sell off tiny rooms.”

Australia’s housing shortfall – estimated to have reached 1.3 million homes over the past 20 years alone – requires a greater boost to stock levels than the country can arguably seek to create from scratch. Repurposing existing buildings, particularly hotels, offers one way to do that.

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Hotel buildings usually already have central cores for lifts and other services and floorplans with kitchens and plumbing that lend themselves more to residential refurbishment than office buildings with side cores and deep, wide floor plates.

“From a very high level it would be much easier, especially for a more serviced apartment product or budget-style smaller hotel product,” said JLL senior analyst Kyle Wheatley.

“It would definitely be a lot more feasible than an office building, just given the similarities in product type.”

While the age of a large proportion – some 984 out of the total 2382 – registered hotels is unknown, at least 481 of those were opened before the turn of the century according to STR data analysed by JLL.

“Pre-2000s is probably for a hotel getting tired, especially if it hasn’t had any form of capital or anything done to it,” Mr Wheatley said.

“But it doesn’t mean that all of that stock is suitable to be converted to BTR. It really comes down to the product.”

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For some it does work. In 2021, JDH Capital – the developer behind the refurbishment of the Sirius former public housing building in the Rocks – acquired Sydney’s former Vibe Rushcutters Bay hotel for $125 million and is now preselling apartments in the renamed Nautique development.

JDH Capital last year also acquired the Sir Stamford Circular Quay for $210.5 million and has plans to convert the property to high-end apartments.

When counted by rooms, JLL’s figures show at least 22 per cent of the country’s total hotel room stock of 203,590 opened before 2000, with a further 35 per cent of unknown opening date.

It’s not always possible to redevelop an existing structure. Aware Super, which in 2021 with Altis Property Partners acquired the former Bayview on the Park hotel overlooking Melbourne’s Albert Park Lake to develop a build-to-rent property, will knock down the derelict former four-star hotel and rebuild, Aware Super head of property Alek Misev said.

“It is very asset-specific and really depends on what price you need to pay, the cost you need to spend to redevelop and whether you can make it work,” Mr Misev told the Financial Review.

The $160 billion super fund is also in due diligence over a hotel property in Amsterdam that if it succeeds in buying would be a good candidate to refurbish into a BTR asset, Mr Misev said.

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Others are converting existing buildings. BTR operator Home has lodged a planning application to refurbish an Albert Park site in Melbourne it bought in April. It hopes to have a plan approved in the first half of next year.

“At the end of the day the location is the most important thing to us,” Home head Christian Grahame said. “Hotel locations are often in the best parts of a city and so they are likely to be attractive for BTR.”

The viability of converting is neck and neck with knockdown and rebuild, except in Sydney, where planning rules can make the envelope of an existing building irreplaceable.

But if Australia’s regulations follow those of the UK and parts of the US to price embodied carbon of an existing structure, that equation would change, Mr Grahame said.

“You’d like to think in time there may be an opportunity to genuinely incentivise the adaptive reuse of buildings, to save embodied energy and deliver housing more quickly, but that’s not yet recognised in planning and other regulation,” he said.

Converting hotel stock also carried extra costs, Ms Morley warned. Hotel buildings were designed with back-of-house areas intended for staff functions such as meeting rooms, uniform stores and offices in small spaces without natural light that could be challenging to convert to amenity spaces for BTR residents, she said.

But hotel operators, also looking to expand into other offerings such as coworking, were increasingly looking at different uses for traditional buildings, Ms Morley said.

Michael Bleby covers commercial and residential property, with a focus on housing and finance, construction, design & architecture. He also dabbles in the business of sport. Michael is based in Melbourne. Connect with Michael on Twitter. Email Michael at mbleby@afr.com
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 Australia’s housing shortage means the country needs more of a stock boost than it can build from scratch. And, there’s one ageing asset class that might help. Australia’s housing shortage means the country needs more of a stock boost than it can build from scratch. And, there’s one ageing asset class that might help. 

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