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Room at the Inn? The squeeze on hotels in Central London

26 Jun 19

at a time when competition for land is intense, balancing the needs of the visitor industry with competing pressures for homes and employment is becoming increasingly difficult. And it is not just competing pressures for land that act as a threat to hotel delivery, it is also the increasing financial burden placed by the planning system on new visitor accommodation

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It is telling of the market that hotel development has become an attractive alternative to residential for Central London sites. Indeed, we at Iceni are currently instructed on a number of projects across the capital reflective of the current demand for hotels where historically office or residential-led development was the norm. But of course, wherever the market leads, planning policy seeks to rebalance.

Whilst we all know the importance of housing delivery for London, it would be wise to keep in mind the role of the visitor industry to our economy. London alone receives millions of visitors every year, contributing £36 billion to the economy and supporting 700,000 jobs. According to ‘A Tourism Vision for London’ (produced by London & Partners) overnight visitor numbers are set to increase to over 40 million a year by 2025.

But at a time when competition for land is intense, balancing the needs of the visitor industry with competing pressures for homes and employment is becoming increasingly difficult. And it is not just competing pressures for land that act as a threat to hotel delivery, it is also the increasing financial burden placed by the planning system on new visitor accommodation.

A clear example of this is MCIL 2. In place since 1 April 2019, MCIL 2 sets a rate of £140 sqm for hotel uses within the Central Activities Zone (CAZ). When compared to the previous CAZ S106 surcharge of £61 sqm, this represents an increase of 129%.

The publication of Westminster City Council’s ‘pre-consultation’ draft of the City Plan set hares running earlier in the year by including a policy requiring the developers of new hotels to provide affordable housing. The ‘pre-consultation’ draft included policy to force smaller hotel developments (750-999 sqm) within the Central Activities Zone to make a financial contribution to the Affordable Housing Fund. Above this threshold, 35% of the floorspace would have to be affordable housing provided on site. There was a collective sigh of relief at the Regulation 19 draft (published last week), which upped these thresholds significantly to 2,500 sqm and 6,500 sqm, respectively, albeit any such hotel schemes within the Westminster CAZ will still need to grapple with additional policy issues and financial contributions.

This is not a Westminster specific shift. Despite a general policy support within Camden’s Local Plan for hotels in Central London, the current consultation draft of the Holborn Vision & Urban Strategy, references on page 6 “recent development pressure for hotels” and the need to “continue to deliver new housing instead”.

There was £11.2bn of tourism spending across Westminster, Kensington and Chelsea, and Camden in 2017 (‘Tourist Information: Mapping the local value of international visitors’, from London First and EY) making a huge contribution to the economies of these boroughs. At a time when London’s growing tourism sector is facing myriad challenges, specifically uncertainty over recruitment and capacity constraints, I question whether now is really the time to discourage any form of investment in Central London, particularly in a sector which has such clear cut economic benefits.

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