Office to hotel conversions a ‘huge opportunity’

The Canberra Institute of Technology is using part of the building as a campus, and the other 70 per cent is vacant office space.

The building was previously occupied by the ACT government.

Veriu chief executive Zed Sanjana said the group wanted to quadruple its apartment hotel network to 80 properties by the early 2030s, and was getting many inquiries from office owners.

“This is the first one for us, but on two or three others we are not far away from getting commitments from landlords to invest [in a hotel conversion project],” Mr Sanjana told The Australian Financial Review.

“It’s a huge opportunity because construction costs are so significant,” he said.

“Re-adapting existing underutilised office space in prime locations is a really attractive proposition for us because it allows us to minimise construction costs and complete projects much more quickly in markets where we’ve identified growing demand for quality CBD and suburban assets.”

It is expected to cost about $10 million to convert the Tuggeranong office building into a new Punthill hotel.

In return, the developer will lock in one long-term hotel tenant on a minimum 15-year lease compared with securing one or more traditional office tenants, which need the incentive of much shorter leases.

With office vacancy rates above 14 per cent in Sydney and more than 16 per cent in Melbourne, many landlords will be eyeing up adaptive reuse of their buildings.

However, many office buildings, especially large ones with deep floor plates would not suit conversion to hotel rooms, Mr Sanjana warned.

“The challenge is finding the right opportunity. You only need seven to eight metres of depth, but some offices may have 20 metres of depth, which doesn’t offer the efficiencies to make it work.”

Small office towers with a central core and at least three aspects where you can fit rooms around the building presented the best opportunities, Mr Sanjana said.

Alongside office conversions, Veriu, which was founded by Alex Thorpe and Rhys Williams (Mr Sanjana, who previously led Quest, joined as CEO and an equity partner in 2018) is rolling out new hotels across NSW and Victoria

Its latest is the 95-room Veriu Collingwood, which opened in June within Rich Lister Tim Gurner’s Atelier Residences development on Johnston Street.

In June, Veriu opened 52-key Punthill Parramatta, its second NSW property under this brand. Its largest hotel to date, the 184-key Veriu Macquarie Park, is under construction and due to be completed next year.

Veriu is partnering with Sarkis Nassif’s Holdmark Property Group on the Macquarie Park project and on a Punthill hotel in Ryde in Sydney’s north-west.

A Punthill hotel in Maitland will open in April followed by a Punthill in Liverpool in 2025, while construction has also started on Punthill Sunshine in Melbourne’s west.

These form part of about 20 hotel projects at various stages of development, which combined with 21 operating hotels, puts Veriu half-way towards its goal of operating 80 hotels within 10 years.

Driving this growth has been a rebound in operating performance post-COVID, with occupancy rates in the high 80 per cent range and daily rates that are 15 per cent to 20 per cent higher than the pre-pandemic period.

Having grown exponentially from just 5 per cent of the market in the early 1990s to about 30 per cent currently as groups such as Quest, TFE and Meriton have expanded, Mr Sanjana said serviced apartments were now “one of the most bankable investments” in terms of getting new accommodation product to market and “more feasible than traditional hotel product”.

“There is certainly enough demand from developers for what we do and certainly enough demand in the market,” Mr Sanjana said.

With Veriu operating under a lease model – in contrast to most hotel companies that operate under management agreements – Mr Sanjana said it was important to get a good chunk of corporate business locked in each month to cover the rent.

“Thirty to 40 per cent of our business is underpinned by the long-stay corporate market – those guests staying more than two weeks,” he said.