M&G Investments has bought a UK hotel development for its long-lease fund.

The freehold of the redundant office asset, at 21 Tothill Street in London, was bought by the firm.

M&G Investments will fund the development of a 339-room “hub by Premier Inn”, with completion due this year.

The manager bought the asset, in Westminster, for its £3.3bn long-lease M&G Secured Property Income Fund.

Ben Jones, manager of the fund, said: “This investment will provide our clients with a high quality, inflation-linked cash flow.

“The forecast returns are well supported by the prime, central location of the asset, underpinning the long-term value of the investment.”

Pension funds and insurance companies, he said, continue to look for secure long-term investments to match their liabilities.

“We are confident that this property will deliver on that requirement. London is one of the world’s leading tourist and business destinations with a strong demand for budget hotels.”

The property will be let to Premier Inn on a 25-year lease with five-yearly rent reviews.