The rise of remote working — even after the end of COVID — has significantly reduced office occupancy levels, particularly in leading hotel markets such as Madrid and Barcelona. At the same time, in Spain, cases where office assets outperform hotels in terms of investment returns have become increasingly rare. Recent movements in office yields reflect a clearly discouraging trend.

These new working patterns, when analysed in the context of Spain’s consolidation as a leading global tourism powerhouse, position the conversion of offices into hotels as an increasingly compelling second opportunity for value creation for office asset owners.

Very High Potential

The potential volume of office-to-hotel conversions could reach levels far higher than those currently observed. However, two main factors are, for the time being, slowing down this trend:

• – Office investors typically seek minimal risk exposure and are more comfortable with fixed-rent lease structures.
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  – Hotel conversion requires substantial investment and implies a long-term change in the nature of the asset, with no realistic option to revert to its previous use once adapted to a hotel configuration.

To overcome these concerns, office owners should rely on external hotel experts, who can provide a detailed assessment of the required investment, a realistic projection of expected returns, and a clear valuation of the asset’s liquidity under its new use.

Challenges and Solutions

From an architectural and functional standpoint, office-to-hotel conversions typically face three recurring challenges:

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  – Limited ground-floor space: Office buildings often have relatively small ground floors, frequently optimised for alternative uses such as retail, making them insufficient for a conventional hotel (though not necessarily for newer, more flexible hospitality models such as extended-stay).
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• – Elevator core configuration: Office buildings are structurally designed with elevator cores sized for higher vertical traffic volumes than those typically required in hotels.
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• – Natural light generation: Office space layouts do not always favour natural light penetration, which can affect the future hotel room distribution (less so with an extended-stay configuration)

Addressing these challenges goes beyond architecture and requires a business strategy aligned with the physical characteristics of the asset:

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  – Prioritising hotel product quality over star ratings assigned by local tourism authorities — an approach that requires a shift in mindset for traditional office investors (and for other stakeholders such as valuers and banks).
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• – Selecting modern hotel operators that offer flexible accommodation models, including studios, extended-stay apartments, private rooms with bunk beds, or group rooms. Some operators even combine multiple room typologies within the same building, thereby maximising operational efficiency.

A Unique Opportunity for Office Owners

In short, tourism growth and the evolution of labour markets have created an unprecedented opportunity for office-to-hotel conversions in Spain and other tourism-driven markets. However, this transformation requires deep hospitality expertise and a well-structured strategy.

New hospitality business models, such as extended-stay, now allow office owners to achieve superior returns with a controlled level of risk, making office-to-hotel conversion a highly attractive alternative in certain repositioning scenarios.