EUROPE - Moscow has replaced London as the most attractive European city for real estate investors, according to a new survey by LaSalle Investment Management.

The Russian capital rose to the top of the European Regional Economic Growth Index 2011 (E-REGI) despite the manager noting that its negative business environment score would see a number of foreign investors deterred.

The research saw Munich and Paris retain third and fourth position, respectively, while strong growth in Turkey saw Istanbul come fifth for the first time, entering the list of the 10 most desirable European cities for the first time, forcing Sweden's second-largest city of Gothenburg out of the leading 10 entirely.

Germany, meanwhile, was the only country with two cities among the leading 10 - with Stuttgart rounding out the table behind Luxembourg, Stockholm, Oslo and Copenhagen.

The country also counted five cities overall in the top 20, with LaSalle noting this highlighted the "accelerating polarisation" between strong and weak European economies.

Simon Marrison, European chief executive at LaSalle said: "The polarisation in Europe is the strongest since before the adoption of the single euro currency. 

"The competitive economies of the Nordics, Germany and emerging Eastern European markets are forecasted to fare relatively well over the next few years, while the highly indebted southern European and certain emerging markets are likely to lag."

Examining the risks associated with investment in Russia, the manager noted that it was one of the few countries to have benefitted from rising energy prices, but that this also exposed it to higher volatility.

LaSalle said: "The crucial issue going forward is to restore confidence among foreign investors still wary of investing in Russia.

"Moscow's growth potential and size makes it stand apart from the other cities, but potential growth by itself is not enough to earmark a city as a potential investment target market."

However, it stressed that all Russian cities examined received negative business environment scores, with lack of transparency around transactions and certainty on how effective foreign businesses would be able to operate having a negative impact.

Of the UK, it noted that it remained the most polarised of all Western European countries, with London the only city in the top 20.

Marrison said: "Despite losing its top spot, London is a mature, dynamic and resilient economy that continues to set the pace for the rest of Western Europe. 

"The 2012 Olympic Games will provide a welcome boost through job opportunities and local regeneration, and by aiding the hospitality industry."

However, despite the negative outlook and a warning that weaker cities could no longer rely on a robust national economy for growth, Edinburgh rose 30 places to 29, while Manchester was ranked 35th and was the third and only other UK city in the top 50.