Hotel executives set sights on empty office buildings as supply lags demand

By Doyinsola Oladipo

NEW YORK (Reuters) - Hotel executives are surveying vacant office and residential buildings in prime locations from the U.S. to China to drive supply growth as financing challenges for new construction hinder efforts to maximize buoyant demand.

Hotel supply growth in 2024 is hovering under 1% compared to 30-year averages of 2.5%, but with commercial assets sitting empty around the world, hotel operators are scouting unique conversion opportunities.

"Constriction in the debt markets for new construction, that is causing us all to duke it out for every conversion that presents itself," Marriott CEO Anthony Capuano said at the NYU International Hospitality Industry Investment Conference earlier this week.

Marriott, known for its Ritz-Carlton and Sheraton brands, this week announced Project Mid-T in North America, its latest effort to convert existing hotels or commercial assets such as offices into mid-scale hotels at lower costs.

The industry has solid demand growth compared to historically low hotel supply, according to Hilton Worldwide's CEO Christopher Nassetta.

"We have to look at different ways to repurpose existing assets," said UK-based IHG Hotels & Resorts CEO Elie Maalouf.

Maalouf warned office-to-hotel conversions aren't easy and may be expensive but with strong travel demand the economics makes sense.

"I think a lot of office buildings don't have a future in hotels because of the floor plates and infrastructure but some will."

Hyatt Hotels CEO Mark Hoplamazian said some office buildings in Europe are becoming B, C or D-rate office buildings but they are in prime locations.

A similar trend is playing out in China but with residential buildings as the country grapples with a property crisis.

"China has an over-building problem, not really in the hotel space, but in the residential and other commercial spaces," Hilton Nassetta said. "They are repurposing them."

Close to 50% of Hilton's Hampton hotel expansion in China are conversions from preexisting real estate, he said.

(Reporting by Doyinsola Oladipo in New York; Editing by Sriraj Kalluvila)