Three German cities — Munich, Berlin and Hamburg — were rated among the top five European markets for commercial real estate investment in an assessment prepared by the Urban Land Institute and PricewaterhouseCoopers.

This story first appeared in the January 22, 2013 issue of WWD. Subscribe Today.

Munich moved up one notch from its 2012 ranking to the top spot on the survey, with Berlin advancing two slots to number two and Hamburg jumping two ticks to the fifth spot. The largest improvement in the top 10 came from London, up seven slots to third.

Istanbul dropped to fourth from first; Paris and Moscow were unchanged at sixth and ninth, respectively, and Warsaw declined the most, to 10th place from seventh. Zurich improved to seventh from eighth and Stockholm slipped three places to eighth.

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“Almost five years since the start of the financial crisis, real estate investors remain cautious about capital deployment and the availability of debt,” said Joe Montgomery, chief executive officer of ULI Europe. “As a result, investors are focusing on the harder-to-find opportunities in blue-chip cities such as Munich, Berlin, London and Paris, rather than turning to secondary locations in search of higher returns.”

A total of 27 markets were rated on the basis of the potential for existing property investment. Elsewhere in the study, prospects for development and new investment potential were evaluated.

Those with the poorest rankings, the report noted, “are mostly in those countries at the center of the euro crisis or coping with the consequences of the 2008 financial crisis. Dublin, for instance, finished at number 20, Rome at 21 and Amsterdam at 22, with the bottom five populated by cities in Spain (Barcelona at 23 and Madrid at 24), Portugal (Lisbon at 26) and Greece (Athens last at 27). Budapest sat in 25th place.

Explaining Munich’s top position, the study cited “low vacancy rates and constrained supply” and a “rapid increase in tourist numbers, especially from BRIC countries.” Berlin was lauded for its status as home to more than 15,000 technology companies generating revenues of about 19 billion euros, or $25.3 billion at current exchange, a year.

London, it was noted, is considered “one of the world’s ultimate safe havens…perceived as sitting apart from the problems in the wider U.K. and European economies.”

In contrast to the three cities in front of it, Istanbul excelled in ratings for development potential. “The city’s exciting real estate potential is driven by economic growth that rivals China and demographics where the average age in Turkey is only 29,” the report summary said.

In a segmentation of the results by sector, the strongest markets for retail acquisitions, in descending order of popularity among the respondents, were Paris, Munich and Milan. The three German markets in the top five finished just behind Milan in retail appeal.

Cities in Spain and Ireland garnered low scores on the retail scale. Even in those markets, the report said, “investors report double-digit growth in retail designed for the emerging class of wealthy ‘shopping tourists.’”

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