London is expected to lead the initial recovery phase for the EMEA Hotel Market according to latest Hotel Investor Sentiment Survey (HISS).

The survey highlighted a growing confidence in the capital's hotel market, with investors reporting a high level of buy intentions for key European gateway cities like London and Paris.

While positive growth in expectations was reported for key cities across Western Europe, London was the clear leader and the only city for which investors reported optimistic trading performance potential in both the short and medium term.

Jonathan Hubbard, Managing Director for Northern Europe at Jones Lang LaSalle Hotels, said: "Despite the global recession London remains a popular tourist destination. This, combined with a weak sterling, has limited the decline of international visitors and kept occupancy rates at healthy levels. The survey reported some of the lowest yield requirements for London and highlights the increasing number of overseas investors targeting this hotel market.

However, the survey also reported that the UK recorded the lowest intention to sell, with London scoring practically zero. This will mean that London remains a very competitive market place and will put an upward pressure on values. The challenge the city now faces is providing a sufficient supply of hotels for sale at market price."

Investors also reported positive medium term expectations for Edinburgh and Birmingham, both of which benefit from large scale events and conferences. The strong festival season in Edinburgh resulted in the highest occupancy and revenue figures for August across the UK. Conversely, compared to other regional cities, Manchester did not report the same level of confidence. Jonathan Hubbard commented: "This is likely due to the city's strong supply pipeline. In 2010 Manchester is expected to see almost 1,600 rooms added to the market, which would result in a 16% increase in supply."

According to the HISS, the average yield requirement for the UK reached 8.2%, down from 9.1% in April 2009. The decline in yield requirements was noted for all provincial cities tracked and ranged from 80 to 110 basis points. The hardening of yield requirements is, however, not expected to persist with investors reporting an expectation of further softening in the coming six months.

London is one of only two cities in Europe where yields are expected to continue to harden. This contrasts with other European markets which are expected to suffer as some hotel operators struggle to meet debt repayments forcing assets onto the market.

Hubbard concluded: "Confidence in the London hotel market is returning. While the sector across Europe still faces challenges as it emerges from the recession, the UK's capital is already a popular target for well funded investors looking to secure freehold and long leasehold assets in good locations.

However, the scarcity of available investment opportunities might force some of these investors to look to other key regional cities in the UK and gateway cities across Europe."