Following changes to planning legislation, specifically the opening up of Green Belt land for development, hotels across the country are changing the way they approach land use to ensure a profitable future.
Owners of hotels may be keen to sell their buildings and land where the existing asset no longer supports long-term profitability. Many older hotels are in need of significant refurbishment to remain competitive, with rising maintenance costs and energy inefficiencies eating into margins. In some cases, the property’s location may no longer align with changing tourism or business travel patterns, leaving occupancy levels under pressure. At the same time, sites in prime urban or coastal areas often carry land values far exceeding their worth as hotel operations, making redevelopment for residential, mixed-use, or commercial schemes highly attractive. By selling, owners can release capital, exit a declining location, and reinvest in newer, purpose-built hotels in areas with stronger demand and lower operating costs.
Advice in relation to land use, planning and business rates does not mean encouraging hotels to sell up and close, but to explore alternative options that enable them to capitalise on high land values and take advantage of planning policies to benefit the future viability of the hotel and, in some cases, their local communities too.
As a land agent, I’ve been pleased to enable hotel owners and operators to benefit from these circumstances.
For those thinking of benefiting from situations such as this, the starting point is an analysis of local land use and opportunities, which includes the demand for land, the local market value and property prices, the local planning authority (or Mayoral) development plan and growth targets and proposed changes such as local facilities and transport infrastructure.
It’s also important to look at the accessibility of the current site, any restrictions to development (such as Green Belt or conservation area status), its proximity to local services and amenities and any physical restrictions or benefits. This will help determine both the value of the hotel’s current location and its potential for relocation elsewhere.
There are many different land transaction types. These can broadly be summarised as: unconditional sale, sale subject to planning consent, sale with planning consent and option and promotion agreements. In each case, the approach taken must reflect the owner’s objectives, specifically regarding time and risk, and the chosen method of sale will significantly impact the price achieved.
So, for example, an unconditional sale is typically best suited to a distressed landowner in a hurry to sell or whereby the value is already crystallised (i.e it is allocated in a Local Plan). But land sold as part of a hotel site without planning permission for residential development will typically result in a lower price. This is because the buyer would need to invest significantly in gaining planning consent, and without any guarantee of success.
Another option is a ‘conditional contract’ or ‘option agreement’ which enables the owner to pursue planning consent with an eventual sale agreed if planning consent is achieved – but the buyer has the option to withdraw from the transaction if the planning application is unsuccessful. On this basis, the buyer will be prepared to offer more as their financial risk is lower as compared to an unconditional sale. Despite this, this is not a quick route to a land sale: it can take months, even years, for planning permission to be granted and so financial return is delayed. On the plus side, if a hotel can sell land with the benefit of planning permission (or an allocation), it will achieve a higher land value.
There is one further form of land sale: promotion agreements. These are increasingly popular and are well-suited to large sites such as the landholdings attached to a hotel. Under these agreements, the developer/promoter uses their own funds, experience and expertise to seek planning consent. When planning permission is secured, the landowner will then sell the land with the promoter taking an agreed share of the sale price. In essence, this creates a partnership model whereby both parties have a mutually beneficial objective – to maximise land value.
The planning world is complicated and ever-changing. Other opportunities that might be relevant include the relatively recent permitted development rights which allow change of use from one Planning Use Class to another (in certain circumstances). On the other hand, the introduction of new ‘planning gain’ requirements can create additional challenges – one of which is the requirement that any new development achieves a minimum 10% uplift on the existing biodiversity on site.
Navigating the planning system against the backdrop of seemingly persistent economic uncertainty presents a real challenge. There are solutions: land diversification, whether developing, relocating, or seeking alternative uses can increase a hotel’s value and generate income. Substantial changes may be necessary, but with the appropriate strategy, substantial change can result in substantially increased profitability.
Contributor: Ian Barnett, Group Land and Development Director, LRG