Planning permission has been granted for the addition of eight storeys to the building, built in 1910, to accommodate 74 apartments, which will sit alongside 8,500 sq ft of commercial space on the ground and lower ground floors.
Architects Flanagan Lawrence will retain the original faÁ§ade and historic details of the Edwardian property, while blending it with the brick work of a new art deco inspired building.
Overlooking Shepherds Bush Green, the development is located between two Grade II-listed buildings: the Pavilion, formerly a cinema and now the Dorsett Shepherds Bush hotel, which will service the new apartments, and the Empire, a music venue which once housed the BBC Television Theatre.
The ground floor of the Palladium will feature a restaurant linked to the hotel via a glazed courtyard entrance, while the lower ground floor will accommodate a café and entertainment space.
Guests at the apartments, which will range from 246 sq ft to 408 sqft, will be able to use the two restaurants, bar, business centre, gym and spa at the hotel.
John Connolly, head of UK development at Far East Consortium, parent company of Dorsett Hospitality International, said: "We are delighted to have obtained planning permission to transform the former Walkabout pub into desirable serviced apartments. The building is steeped in history and has played a pivotal role in the history of Shepherd's Bush.
"We are proud to be able to restore its original details, most of which are covered up at present. The new building pays homage to its past but also gives it a future for many to enjoy for years to come."
The Palladium originally opened as the Shepherds Bush Cinematograph Theatre , before relaunching, with a new, grander faÁ§ade, in 1923 at the Shepherds Bush Palladium. It was modernised in 1968 and relaunched as the Classic, before being taken over by Odeon in 1973. The building later became the Walkabout pub and was converted to offices in 2013.
Building work will start next year, with the opening of the apartments expected to take place in 2019.
Dorsett Hospitality International launched its first London hotel - the 317-bedroom Dorsett Shepherds Bush - in 2014 and will open its second hotel, the 276-bedroom Dorsett City next month.
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