The UK’s hotel sector is at a crossroads. Hotel investment values reached approximately £5 billion in 2025. Although hotel margins remain comparatively robust, 41% in London and 30% outside it in 2025 with the 2026 projections (factoring in the current geopolitical environment) seeming promising, the care home sector, in particular, is gaining ground. It is a sector with high demand and steady growth, with EBITDARM (EBITDA plus rent and management fees) sitting at approximately 26%. Against this backdrop, adaptive reuse — the conversion of hotel buildings into care homes or co-living accommodation — has over recent years emerged as a growing area of interest for developers and investors.
From a planning and regulatory standpoint, the conversion of hotels into care homes can sometimes benefit from a relatively favourable legal framework. Such conversions involve a change of use from hotel use (C1) to residential or specialised senior living (C3 or sui generis), and provided that physical alterations are kept to a minimum, this change can occur through permitted development rights (PDR), bypassing the need for full planning permission. Often, however, PDRs may not fully apply to hotel-to-residential projects, something which would necessitate a bespoke and often laborious planning application. Whilst local authorities have generally been amenable to such conversion proposals by recognising the acute social need for senior housing capacity, many areas in the UK still have policies designed to protect hotels and B&Bs in order to support local tourism, which can result in planning applications being sometimes refused.
Additionally, consideration should be given to restrictions on the land’s title that may limit the manner in which a property can be used, while projects can also trigger rights of light claims from adjoining or neighbouring landowners. Conversions to senior housing sometimes require additional local communal infrastructure (such as healthcare access). This may pose limitations and trigger additional local authority considerations when weighing change of use and planning applications. Furthermore, hotels must be converted to meet robust building regulations for residential dwellings, with the Building Safety Act 2022 adding further safety requirements when the building includes multiple residential spaces.
The regulatory pathway for hotel to co-living space conversions also entails certain complexities. In London, where most co-living developments are concentrated, projects of 50 units or more are generally classified as a sui generis use, often requiring bespoke planning permission applications. Alternatively, where stays do not exceed 90 days, a property may remain classified as a C1 hotel, though this model leaves short stays subject to value added tax. Co-living spaces frequently fall under Houses in Multiple Occupation (HMO) rules and failing to obtain a valid HMO licence can result in legal action and fines being imposed. Co-living spaces typically use ‘licence to occupy’ agreements. However, if the agreement in practice provides for exclusive possession and a fixed term, it may end up giving residents more rights than intended.
As hotel profitability faces structural headwinds and demand for both senior housing and flexible urban living spaces intensifies, practitioners advising on real estate transactions should pay close attention to the evolving planning frameworks, PDRs, and complexities with the change of use classes that govern these conversions. The interplay between local and social policy objectives, commercial viability, and regulatory support will continue to shape the adaptive reuse landscape in the years ahead.