More than half of the 18,000 hotel rooms to have opened in London since 2012 have been in the budget sector.
That's according to new figures from property consultants JLL and London & Partners, the Mayor of London's promotional company, which said it had detected significant growth in the sector since the city hosted the 2012 Olympic Games.
Some 33% of the 7,000 rooms due for completion this year will be in the same sector.
The ‘London Hotel Development Monitor', which is launched today, shows that low-cost hotels now make up 20% of the total room stock across the city.
Traditionally investment in hotels in London has focused around central areas, however high rents and values in the West End are leading to the expansion of traditional boundaries, the report says.
New infrastructure improvements and a booming digital economy has created a "Knowledge Corridor" that stretches from Bloomsbury to Paddington, taking in Fitzrovia and North of Oxford Street. Hotel activity is increasing as these areas grow, with Premier Inn opening another hotel on Tottenham Court Road this year and US-based hotel operator Standard International opening its first hotel in 2018 in the former Camden Town Hall.
Shoreditch has also become a hotspot for hotel development due to building availability and lower costs compared to more central locations with new hotels including Z Hotels and Nobu Hotel Shoreditch opening up. During 2016, a further 800 rooms are expected to be added to the area.
The report also shows that London dominates investment across Europe's hotel sector with the capital attracting 36% of total investment.
Gordon Innes, chief executive of London & Partners said: "The hotel industry is a vital part of London's booming tourism economy, which is now worth £36b and supports hundreds of thousands of jobs, many of which are widely accessible. As more and more visitors come and explore our great city, it's encouraging to see the hotel sector growing and bringing exciting new developments de visitors."
Graham Craggs, managing director in JLL's Hotels & Hospitality Group, added: "2015 was an exceptionally strong year in terms of hotel transactions in London. Activity will remain high in 2016 and we expect the trend will shift towards single asset transactions. Underlying market fundamentals continue to be positive and the outlook for hotel performance in London is good."
The GLA 2015 London plan seeks to achieve 40,000 net additional hotel rooms by 2036. New hotel development is being encouraged within the City of London, Westminster, the Eastern edge of the Royal Borough of Kensington & Chelsea (RBKC), Southern parts of Camden, Islington, the ‘city fringe' edges of Hackney and Tower Hamlets; and the Northern parts of Southwark, Lambeth and Wandsworth.