‘Emerging Trends in Real Estate Europe 2008’ surveyed 500 industry professionals active in 27 European property markets. Moscow and Istanbul ranked first and second respectively while Hamburg and Munich held the third and fourth spots as Europe’s top investment markets. Paris, which held the top investment rating in 2007, slipped slightly, taking fifth place for investment prospects and sixth place for development prospects. According to the report, the shift in the top markets suggests a desire by industry professionals to branch out of ‘Old Europe’ to investigate new markets and diversify current holdings and developments.

‘Without question, Europe is facing a bumpier ride this year than the last few years. The findings in the report show how markets in Europe have become more globally connected and more vulnerable to economic shifts occurring in other parts of the world,’ said Richard Rosan, president of ULI Worldwide. ‘However, the fact that many respondents remain confident about European markets points to the still-local nature of real estate. We are seeing a lot of guarded optimism.’

An improvement in Germany’s economy is reflected in the inclusion of four German cities – Hamburg, Munich, Berlin and Frankfurt – on the list of top ten investment markets. ‘Despite all the turbulence in the international markets, the German property market is still on the upturn,’ the report said. One factor that could affect future investment and development decisions is an ‘expansion in the definition’ of Europe to include parts of the Middle East and Africa, the report said, noting that many interviewees mentioned Abu Dhabi and Dubai as potential markets for business.

One of the sharpest drops among the European markets occurred with London, which fell to 15th place for investment prospects and 13th place for development opportunities. The report suggested that London, more than other European cities, is experiencing declining economic conditions similar to those in the US, including a drop in consumer spending, falling house prices, a rise in personal indebtedness, worries over home repossessions, and turmoil in the financial sector.

‘The story is very different depending on where in Europe you are looking to invest and your appetite for risk,’ according to Henrik Steinbrecher, global real estate leader at PwC. ‘At one end of the scale Russia and Turkey are booming, at the other end London has fallen out of favour with many investors. We are seeing the emergence of very different real estate markets in Europe. As investors look for returns in a volatile market, they need to understand the complexities of the markets that they are moving into.’

Top 10 European investment prospects

1 Moscow

2 Istanbul

3 Hamburg

4 Munich

5 Paris

6 Lyon

7 Frankfurt

8 Stockholm

9 Berlin

10 Helsinki

Top 10 European development market prospects

1 Moscow

2 Istanbul

3 Munich

4 Hamburg

5 Lyon

6 Paris

7 Prague

8 Warsaw

9 Stockholm

10 Helsinki