A report by PwC and the Urban Land Institute has revealed that London has dropped out of the list of the top 10 best cities in Europe for investment prospects in property. It is the first time the capital has been outside the top 10 since 2012.

London’s fall to 15th place comes courtesy of high house prices and diminishing yields. Two German cities were out in front in the Emerging Trends in Real Estate report, with Berlin and Hamburg in first and second place respectively, while Birmingham was the UK’s highest placed city in sixth.

Dublin, Madrid, Copenhagen, Lisbon, Milan, Amsterdam and Munich made up the rest of the top 10.

Although London is still the largest investment market for property in Europe, it found itself falling behind emerging investment cities such as Istanbul and Budapest, despite the unstable political situations in these areas. Istanbul’s increasing appeal is attributed to its rapidly expanding population, which has opened up enormous opportunities for investors.

London, by contrast, has seen yields compressed by properties that cost too much and a feeling that house prices have finally hit their peak. Many investors see it as the perfect city in which to preserve their wealth, rather than make more of it. 

“London is the largest real estate market in Europe,” Gareth Lewis, the director of Real Estate at PwC, said. “Money tends to plough into it during the harder times, as people are looking for a safe bet, somewhere to keep their money, and as prices go up and yields compress, people looking for better rewards will look to secondary cities.”

“And that’s when you see cities like London slide out of the top 10. It’s not a long-term damning of the London market by any stretch of the imagination. It’s just a reflection of where we are in the cycle.”

Not everyone agrees with this assertion, though. One investor who was interviewed for the report commented: “Suddenly everybody is beginning to look to sell. The theory is that the smart Americans are taking their chips off the table and are now looking more to mainland Europe, and in particular parts of Germany and southern Europe, to deploy capital in 2016. The big test for London is how much of this stock will be mopped up.”

Birmingham, in sixth place for the second year running, performed strongly thanks to its relative cheapness when compared to London. HSBC have recently moved offices there and the prospect of HS2 is keeping investors very interested in England’s second city.