Commercial conversions

IN a bid to bring extra hotel rooms onto the market, a new study has highlighted investment opportunities in Perth's CBD by compiling a short list of commercial buildings suitable for conversion.

The hotel property conversion study, commissioned by Tourism Western Australia and undertaken by the Property Council of WA, identified 24 buildings in the Perth CBD, West Perth and Northbridge that could be converted into hotels.

The top three ranked buildings were the Old Treasury Building, currently slated for redevelopment, the ABC Building at 187-193 Adelaide Terrace and the Western Power building at 363 Wellington Street.

Dumas House was the only building to achieve a high ranking in West Perth, with Curtin House the highest ranked building in Northbridge.

Tourism WA commissioned the study in response to the shortage of hotel accommodation and the absence of significant numbers of new developments.

Despite record high hotel occupancy rates in recent years, strong returns from alternative property uses, such as residential and office, and high construction costs have curtailed investments in new hotel construction or hotel property conversion.

In some cases, developers can save up to 30 per cent of construction costs by converting existing buildings.

The Property Council believes investors are more likely to consider hotel accommodation if they're given incentives to offset costs and risks, with government reforms such as longer leases and floor space bonuses identified as possible inducements.

Tourism WA infrastructure and investment director James Hewitt said while average room rates had risen, they were not high enough to generate returns as strong as those for residential or office developments.

"Hotel developments are on the fringe of being viable enough," he said.

Mr Hewitt said that, while times were tough at the moment, the industry needed to be ready for when conditions changed.

"Perth is number one in the world in terms of occupancy rates. What we have with that situation is a clear indication that under normal demand conditions new supply would come through," he said.

The attraction of commercial office development compared to hotel developments was demonstrated in a decision earlier this year by the Stamford Land Corporation to scrap plans for a 400-room luxury hotel at 905 Hay St in favour of an office development.

The report estimates that average hotel room rates would have to increase up to 30 per cent to facilitate a significant hotel investment, including a property conversion.

There have been several high-profile examples of successful building conversions in Perth, including the Duxton Hotel and the Rydges Hotel.

Progress on the planned redevelopment of the Old Treasury Building has stalled since the government announced the shortlisted candidates for the hotel component, Mirvac/CBUS Property and Saracen Properties, late last year.