London's increasing visitor numbers, growing economy and rising average room rates are fuelling investor interest in Russian hotels.

Moscow is the most expensive European city in which to stay with average room rates at $352 per night; a 20% increase on last year's figure.

Average room yields are also rising at $254 per room; a 25% increase on last year and ahead of Paris and London - said Jones Lang LaSalle Hotels at yesterday's Russia and CIS Hotel Investment Forum, held in Moscow.

Mark Wynne-Smith, European CEO, Jones Lang LaSalle Hotels said:

"Record-breaking revenues and the lowest labour costs in Europe make Moscow hotels spectacularly profitable. Moscow is a unique but highly successful market – the demand comes mainly from business travellers.

Expensive room rates and a shortage of affordable accommodation are contributing to the stagnation in demand from tourists. This leaves a niche in the market for the development of mid-market and budget accommodation."

He continued: "The lack of modern standard stock is providing developers with a real opportunity. Operators continue to struggle to find suitable projects for their brands in all price segments.

The main challenge they face is finding ‘real projects' – those that actually progress when faced with the lack of experience and understanding of the hotel sector among local developers, as well as existing competition across real estate sectors, non-hotel usage still being more profitable.

However, mixed-use developments are currently popular in Russia creating synergies between different real estate segments; the hottest projects include the Rossiya Hotel, the Moskva Hotel in Moscow, the New Holland in St.Petersbug, etc."

The prime markets of Moscow and St Petersberg remain the preferred locations for investment and development, however secondary locations are emerging as new targets – including Novosibirsk, Rostov-on-Don, Samara, Yekaterinburg, Nizhny Novgorod.