Stephen Salloway, director of Salloway Property Consultants, said the Market Place and land opposite the back of the Council House, next to Exeter Place, was ideal for the development.
Earlier this month, it was confirmed the Assembly Rooms, in the Market Place, will be demolished following a fire.
Resolving the site's future is a key priority in Derby City Council's 15-year masterplan for the city centre.
Mr Salloway – who has clocked up almost 40 years in the commercial property and land sector – said he felt he had the solution.
He said: "Derby is lacking two things: a theatre of size and scale, and a four-star hotel and conference centre. We've got the Market Place, which is under-utilised, and land on the other side of the river to the Council House.
"This is space that I think could form part of a new Cultural Quarter that includes the river, which people always say we don't involve enough. You could have a theatre next to the river that is lit up at night, with the four-star hotel and conference facilities on the site of the Assembly Rooms.
"If you've got a four-star hotel and decent conference facility, you will attract people from outside of Derby. It's something the city needs to aspire to. I would like to see the city hosting some of the big political conferences that currently take place in cities like Birmingham."
Mr Salloway said focusing purely on retail was not the way to revive the Market Place's fortunes.
He said: "We have to accept that the biggest pull within the city centre is the Intu centre. It is incredibly strong in terms of shopping and to an extent leisure, with its restaurants and cinema.
"We are going to have to make the Market Place attractive for different reasons. It is an area that has been under-utilised for years.
"It's a massive space in the city centre that should have activities going on all the time. Too often, you walk in the Market Place and find it to be a large, open, windswept area which just doesn't offer anything.
"They need to come up with a plan for something in the Market Place from 9am to 9pm. The council will ask who is going to pay for it and I accept that is an issue, so you have to look at commercial possibilities."