This, along with at least seven other actual or planned conversions, is part of a new trend that office estate agents hope will cure a mismatch of supply and demand in the capital. Many of them have been hawking tired office buildings around the market, and have had little luck stirring interest. Hoteliers, however, are short of rooms. Foreign tourists, attracted by favourable exchange rates, are coming to London in their droves, and are putting pressure on the capital's limited luxury accomodation.
Last week Knight Frank and Rutley awarded 1 Curzon Street, Mayfair - the former MI5 headquarters - to Development Securities. But one of the four bids shortlisted was a proposal by Japan Airlines to convert the prestigious address into a hotel.
"There is an undersupply of [hotel] rooms of the right quality in central London," says Robert Chess, director of Chesterton's licensed leisure and hotels division. "The decline in the office market and the keenness of hoteliers to buy new sites - sites they can at last afford - has led to a significant new trend."
While office values have plummeted in the past few years, hotels have maintained or increased their value. Some hotels produce as good a return per square foot as offices. But for some hoteliers, funding conversion projects has has been difficult. Institutional investors are chary of putting their money into an unfamiliar area. "Usually the hotel operator will fund it themselves," says Jonathan Hubbard, an associate in the hotels and leisure division of Weatherall, Green & Smith.
Some agents think that if funds were more aware of the market, deals would be even more abundant. "The phenonemon of hotel conversions doesn't seem to have caught the imagination of the funds to the extent it should," one hotel agent says.
How long the trend continues depends on how soon the second-hand office market recovers. "We're seeing a lot of action now, but I don't know whether this is a long-term phenomenon," Mr Chess says. "When the new office buildings around central London come onstream in1996 and 1997, prices may rise too high for this level of hotel investment." Even though extra supply normally depresses prices, the arrival of a raft of high-quality buildings could have the opposite effect.
A host of conversion proposals has now been made. A Malaysian group wants to convert the former Pearl Assurance headquarters at 252 High Holborn into a four-star hotel. Investor-developer Ringfield has paid AMP Asset Managers between pounds 12m and pounds 13m for the property, and aims to change the planning consent to convert it to a 300-bedroom hotel.
Although 74 St James's St, just behind The Ritz, is under a pounds 21m offer for an office scheme from Pillar Property Investments, the buildings agent Hillier Parker has confirmed that an overseas hotel operator has now expressed interest.
Sir Terence Conran and hotelier Gordon Campbell-Gray are about to buy the 1920s Inveresk House in Aldwych from Prudential for about pounds 12.5m, and have plans for a five-star hotel with 120 bedrooms. Land Securities has applied for planning permission to convert its Turnstile House in High Holborn into a hotel, and is understood to have agreed to sell it for around pounds 6m to the French group Orion, which wants to establish an apartment-style hotel.
The City, which has never had more than a handful of hotel rooms, could get two new hotels. As City Development Management is negotiating the pounds 35m purchase of Britannic House with BP, National Westminster Bank and MEPC are considering the conversion of part of the bank's Draper's Gardens office building in Throgmorton Avenue. Whether this goes ahead depends on whether NatWest decides to put staff back into its tower, which was damaged by a bomb in 1993.
q David Parsley is a writer for 'Property Week'.