Following the announcement that the United States has agreed to sell its landmark embassy in London’s Grosvenor Square to Gulf investor Qatari Diar, there are strong suggestions that the site could be developed to include a luxury hotel.

The square already hosts the 5 star London Marriott Hotel and the 4 star Millennium Mayfair but the Qatari investment group has not yet given full details of its plans for the site. It is thought to be planning a mixed use development with a luxury hotel and residential apartments.

The purchase price for the property—known as the Chancery—was not disclosed. Real estate consultant Cushman & Wakefield advised the United States in the transaction.

The building was worth an estimated £500 million at the peak of the market in July 2007, when Qatari Diar was first linked with a possible purchase. It is thought to be worth much less now after a 45 per cent decline in commercial property values.

The purchase is the latest in a number of European real estate investments for Qatari Diar, the property arm of Qatar’s sovereign wealth fund. The company made the news after it withdrew Lord Rogers’ modernist design for the 12.8 acre Chelsea Barracks site in west London in June after Prince Charles called the plan “unsympathetic”.

“Qatari Diar currently has invested more than 3 billion pounds in the UK, and has recently said that it is willing to increase this figure to 5 billion pounds or more as part of its long-term commitment to the country,” the company told the BBC.

The United States will continue to occupy the Chancery until the relocation to its new complex in Wandsworth is complete which is expected to be by 2016 or 2017.