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London has been voted the most attractive hotel investment destination in Europe for the second year in succession, a research published today (Wednesday) shows.

Almost a third (31%) of respondents ranked the UK’s capital as the top place for hotel investment in 2016, ahead of joint-second Barcelona and Madrid (both 27%), which were narrowly followed by Amsterdam (26%).

Paris slipped to fifth place after being second last year. London’s ranking comes despite more than half of respondents (57%) regarding the city as being ‘overvalued,’ according to the survey of senior hospitality industry figures by Deloitte.

China and North America are seen by half of those polled as the primary sources of investment over the next 12 months, largely driven by a weaker euro, attractive yields, favourable interest rates and economic recovery.

Despite the optimism, senior hospitality figures also highlighted several risks facing the industry next year.

More than half (54%) identified geopolitical instability in parts of Europe as a key risk, with the same proportion concerned by the threat of deflation and sluggish economic growth on the Continent. One-third (34%) feel the slowing Chinese economy is a concern.

Significantly, a majority (54%) believe that the European hotel industry is less than 18 months away from reaching the peak of the current investment cycle, which could indicate a changing investment landscape for 2017 and beyond.

Outside London, Scottish cities ranked in two out of the top three regional UK investment points. Edinburgh (47%) was named as the most attractive investment destination in the regions for a second year, followed by a resurgent Manchester (40%) and Glasgow (23%).

Two-thirds (64%) of industry leaders expect regional RevPAR [revenue per available room] to grow by 3%-5% in 2016. The survey also found that recently arrived UK hotel investors are expected to focus on rebranding and repositioning (55%).

A rise in labour costs is anticipated to be an issue for regional UK hoteliers in the next 12 months (53% of respondents). New hotel supply (42%) and the possibility of an interest rate rise (33%) were also cited as potential threats to the UK regional market.

The firm’s global head of hospitality, Nick van Marken, said: “Increasing labour costs are naturally of concern to UK hotel investors, particularly with hotel owners having to increase pensions contributions through auto enrolment, as well as deal with the introduction of the Living Wage scheduled for April next year.

“Optimism over hotel investment in the UK regions remains strong. Although RevPAR growth in 2016 appears likely to slow, confidence in the regional UK remains high.”

He said: “London is again the standout. Some 2,500 luxury hotel rooms alone have been announced as opening by 2021, with an investment value we calculate as in excess of £3 billion. When you consider all the other hotel projects, the total investment pouring into the city is phenomenal.

“Although some investors see the city as overvalued, London’s position as a proven destination for both business and leisure remains unparalleled. Investor appetite and its added status as a safe haven means we expect capital flows to remain strong.”

He added: “Investment into Europe continues at pace, with the UK leading the way in terms of volume, and private equity remains very active. Germany has seen a sustained period of both strong performance and investment. Attention now seems to be focused on Southern Europe, particularly Spain.

“In a sure sign of where we are in the investment cycle, resorts are also in favour. The European resort market is seeing a lot of investment activity, with Spain and Portugal leading the way. Luxury hotel operators are very active, with a number of new projects recently announced.”

The survey results have been released ahead of the 27th annual Deloitte European Hotel Investment Conference.