Preston could support 700 new hotel rooms in the next 15 years and has an immediate need for more than 100 new rooms, according to a study by property management consultancy GVA RGA on behalf of Preston City Council.
GVA RGA's research identified city centre market opportunities for a "branded full-service three-star hotel in a prominent location".
The study also highlighted market demand for a small boutique style hotel/restaurant-with-rooms offering in "one of the attractive historic quarters of the city", such as Winckley Square, which is set to benefit from a successful Heritage Lottery Fund application.
GVA RGA's report says there are further opportunities to enhance existing conferencing facilities in and around the city centre.
Cllr John Swindells, Preston City Council's cabinet member for planning and regulation, said: "This report is really positive and highlights another industry sector which can benefit from investing in Preston.
"The recent announcement of the successful £1m bid to the Heritage Lottery Fund for Winckley Square, an area highlighted in the report as being potentially suitable for a boutique style hotel/restaurant-with-rooms, comes at just the right time.
"Hotel development prospects for Preston are positive and we are urging operators and developers active in the North West to consider potential sites within Preston.
"The negative impacts of the recession have been short lived in the city with strong signs of recovery.
"This study is another string to the bow of what Preston has to offer and comes at an exciting time for investors and developers."
Drivers in demand for more hotel accommodation are said to include the University of Central Lancashire and the strength of Preston's economic and commercial centre.
Nigel Mills, senior consultant, GVA RGA said: "Preston's economic growth prospects appear to be encouraging and the local hotel market is already seeing a number of positive growth signals.
"Preston's economy is being further underpinned by an impressive regeneration programme which should positively impact the city's hotel development prospects".