Government investment firm considering building two office blocks in city centre instead The Guangzhou city government's listed investment unit, Guangzhou Investment, is mulling plans to scrap a hotel tower in its stalled multibillion-dollar property development in the city centre and build more office space instead. Sources said the developer was now considering changes to the complex that would see two office towers rising above a retail complex, instead of one office tower and one hotel tower. If the conversion is approved by the government it will dash the hopes of European hotelier Accor that has been waiting to exercise a management contract already signed with Guangzhou Investment to establish its first luxury brand Sofitel hotel. For now, Accor is pinning its hopes on the hotel plan proceeding despite signals that the developer aims to apply for a change to planning approvals. 'We have seen construction of some hotels slow in the city in the past six months because of tightening of credit. But we still have the management contract to run a Sofitel hotel [in the complex],' Accor senior vice-president for Greater China Robert Murray said yesterday. However, the sources said negotiations with Sofitel about cancelling the management agreement were already under way. 'It may involve paying compensation to Sofitel, since the two parties had signed binding agreements,' one source said. The proposed 28-storey Sofitel Guangzhou and a 60-storey office tower known as Asia Pacific Century Plaza were supposed to have opened late last year. Located close to the city's tallest building, Citic Plaza and Westin Guangzhou Hotel in Tianhe district, the hotel was planned to have 451 rooms and suites. But the developer was now considering building two towers designated for office use, aiming to maximise investment returns since profit margins on office space were more attractive than hotels. The bid to change the project was also partly prompted by the developer's strategy of focusing its financial resources to develop its projects in Zhujiang New Town financial centre - a new business district in the city, a source said. 'The developer will sell the incomplete complex if the offer is good, like 15,000 yuan per square metre or 3.5 billion yuan [HK$3.91 billion]. If not, they will leave it there and develop it later,' the source said. Construction work on the complex has been halted for more than a year due to the decision to overturn the original plan for the development site. Accor is one of the most aggressive hoteliers operating on the mainland. It also owns Pullman, Grand Mercure, Novotel, Mercure and Ibis hotels. Gary Cheung Chi-chung, head of the business space department at DTZ's Guangzhou branch, said changing from a hotel to office space was a sensible move since profit margins from running a hotel were lower taking into account the high management costs. Meanwhile, the supply of luxury hotels was increasing, but demand was stable, he added. Next to the proposed Sofitel is Westin Guangzhou Hotel, and Ritz-Carlton has opened its new hotel in Zhujiang New Town. Guangzhou Investment is also building the West Tower project, which will include a luxury hotel managed by Four Seasons, as well as some other projects covering more than 1.2 million square metres. The West Tower is one of the twin-tower developments in Zhujiang New Town Pearl River New City. It also plans to bid for the development rights of the East Tower from a government tender in the coming months. 'Zhujiang New Town will be the company's development focus in future,' the source said.