The row of vacant Georgian townhouses at the top of Leith Walk was due to be transformed into a luxury boutique hotel by the Irish property tycoon Paul Fitzpatrick.
The proposals by his Fitzpatrick Design Collection – which operates the Beacon and Morgan hotels in Dublin – were to see the now-boarded up site given a radical revamp but fell through last year.
The Baxter’s Place site is being offered as a 166-bedroom four-star, 230-bedroom three-star or 269-bedroom budget hotel.
Although Jones Lang LaSalle said it was aiming for the four-star market, it has offered the alternate scenarios because of the difficult economic climate.
The hotel would be just yards from several other low-cost premises including the Edinburgh Central Hostel.
The owners of struggling bed and breakfasts said a move into the budget market would be another blow to an already struggling industry.
Graham Muir owns the Ardgowan House guest house, in south Newington, and set up a campaign under the banner “Guest Houses Strike Back”, to oppose the growth of the budget hotel market.
He said: “Guest houses are becoming increasingly depleted because there are more and more budget hotels, and they are damaging the industry in Edinburgh.
“We would argue that B&Bs are more personal – family run. People also don’t like the fact that the prices [in chain hotels] are different every day of the week, and that you often have to pay for your breakfast.
“Guest houses are run by local people and any work we need doing all goes to local tradesmen and suppliers, whereas big firms bring up their own people from England or elsewhere and that doesn’t do much for the local economy.”
Leith Walk councillor Angela Blacklock said she would be pleased to see the empty building redeveloped but was concerned it could become a budget hotel
She said: “I do have a general concern about the number of budget hotels in Edinburgh. At the planning committee, ideally we would prefer this to be a four or five-star hotel considering the site.
“But we can only give planning permission for something that somebody wants to build, at the end of the day.
“There are a lot of budget hotels across the road, and it would be the least desirable option to see another, but at the end of the day we don’t want to see it lying empty.”
Planning permission has been granted to develop the hotel and a 1970s office block would be demolished to make way for a new glass building to be attached to the rear.
Keith McBain, associate director of Jones Lang LaSalle Hotels, said there had been significant interest from four-star, three-star and budget markets.
He said: “The building is being marketed for the four-star market at the boutique end, although we have offered a range of scenarios to reflect the market.
“Property development remains challenging at the moment but Edinburgh is very much held in high regard. For some of the interested parties this is their first hotel outside London, and or even the first in the UK in some cases.
“Baxter’s Place has the perfect setting – the lovely contrast of being at the heart of the city but also having the very quiet amenity to the rear looking on to Calton Hill.”
The successful bidder will be revealed in the coming weeks.