Hotel values across Europe saw impressive growth of 3.9% in 2017 compared with the previous year when values stood still, on average, according to our 2018 European Hotel Valuation Index (HVI), published this week.

The HVI monitors annual percentage changes in the value of four- and five-star hotels across 33 European cities, presenting the data in both euro and local currency.

'Business and consumer confidence, as well as GDP growth in Europe, are all riding high,' said report co-author Sophie Perret, director, HVS London. 'Hotel demand is strong in the majority of European markets, with low levels of new supply in most cities pointing to robust performances across the board.'

Europe's most highly prized cities in terms of hotel values per room remain Paris, London, Zürich, Geneva and Rome, although prices in euro terms have softened year-on-year in all but Paris.

Increasing demand for hotel rooms in Lisbon, one of Europe's safest destinations, prompted the Portuguese capital to top the HVI league table in terms of value growth for 2017, up 14.7% on the previous year, and its fourth consecutive year of double-figure growth. Interest in Lisbon among international investors, developers and lenders is on the up, with the city showing strong market fundamentals going forward.

Currency fluctuations, as in the past, have produced some contrasting results for various markets when comparing values in euro and local currency. The strengthening of the rouble against the euro resulted in strong gains for hotels in St Petersburg and Moscow, which saw values in euro rise 14.4% and 11.5%, respectively, to rank the cities second and fifth in growth terms. However, when measured in roubles, values in Moscow hotels fell by 1.1% and only grew by 1.5% in St Petersburg.

Third in the growth rankings were hotels in Madrid, where values rose 14.1% helped by a strong economic climate and a boost in incoming tourist numbers leading to occupancy and average rate rises. With active investor interest in Madrid, transaction volumes have risen and the city can look forward to a number of hotel projects coming online in the next few years.

Value changes in euro were also challenging for the UK, owing to a weak pound, with hotels in each city registering a small decline in euro terms. Birmingham and Manchester hotels saw a slight increase in sterling values. Likewise, London's hotels grew in value by 4.3% in sterling terms on the back of a strong economy and the city's ongoing popularity with leisure and business travellers; hotels in Edinburgh similarly grew by an impressive 6.3% in value. Increasing labour costs and other overheads for UK hotels are likely to continue to put pressure on operating margins over the next 12 months.

Istanbul's euro values also declined, by 3.4%, influenced by terrorist attacks, Turkey's involvement in the civil war in Syria and its unstable relationship with Russia. This is in stark contrast to the local currency value, which was up by a healthy 18.7%.

'On balance, it's likely that hotel investment will continue unabated in most cities, as strong underlying principles drive value growth, especially for those markets in Eastern and Southern Europe, which haven't yet returned to pre-crisis value levels,' concluded report co-author Simon Hultén, analyst, HVS London.

'There are serious gems waiting to be picked up, but you need to know where to look!'

Download a copy of 2018 European Hotel Valuation Index
by Sophie Perret and Simon Hultén at http://www.hvs.com/article/8211/2018-european-hotel-valuation-index/?campaign=email.