In the search for safe havens, German cities will be Europe’s most preferred real estate investment and development destinations in 2017, according to Emerging Trends in Real Estate® Europe 2017. Berlin, Hamburg, Frankfurt, and Munich occupy four of the top five spots for 2017 investment and development prospects in the annual forecast published jointly by ULI and PwC. The report is based on the opinions of almost 800 real estate professionals in Europe, including investors, developers, lenders, agents, and consultants.

According to the report, Germany is currently the most popular destination in Europe for real estate investors and developers, with recent data from Real Capital Analytics confirming that Germany has overtaken the United Kingdom in post–European Union–referendum investment volumes. While remaining Europe’s primary magnet for global capital, attracting €31 billion of capital inflows in the 12 months ending September 2016 (according to Real Capital Analytics), London has fallen from number 11 in 2016 to number 27 in 2017 in the Emerging Trends Europe city rankings for investment and development prospects.

The dominant performance of German cities in the Emerging Trends Europe rankings demonstrates the strong fundamentals of the German market. Berlin has maintained its top position for the second year in a row, cementing its place as a trendy and dynamic global gateway. Hamburg, seen as a solid bet amid economic uncertainty in Europe, also repeats its number-two ranking from last year. Frankfurt, Germany’s business center has soared 11 places to number three, pushing Dublin into fourth position, while Munich holds steady at number five.

This positive outlook for German cities comes in the aftermath of the E.U. referendum outcome, which has left investors and developers uncertain about the United Kingdom’s immediate and medium-term future. Ninety percent of industry leaders surveyed in Emerging Trends Europe predict that U.K. investment and property values will fall over the next 12 months.

However, despite this short-term uncertainty over London, most interviewees have faith in its medium-to-long-term future as a key global city, the report says.

“The fallout from the Brexit vote gives an extra boost to the already strong German real estate market,” said ULI Europe CEO Lisette van Doorn. “With considerable political and economic uncertainty in Europe, many real estate investors are willing to sacrifice some yield in return for lower risk. In this risk-off environment, the stability of German cities becomes even more attractive.”

Not surprisingly, international political instability is expected to pose significant challenges in the coming year, with 89 percent of respondents listing it as their top concern for 2017. Forthcoming elections in France, Germany, and the Netherlands, as well as concerns about migration and terrorism, add to this uncertain outlook. Forty-six percent of respondents believe that the migration crisis will get worse in the coming year, and interviewees reported terrorism as a key threat to investor confidence. This international political instability is not expected to dissipate quickly: nearly two-thirds of survey respondents expect political uncertainty in Europe to worsen over the next three to five years.

As well as geopolitical risks and economic growth prospects in both the short and long terms, the report draws attention to a number of potentially more significant influences that are taxing the minds of Europe’s real estate leaders.

“Given the timing of this year’s report, which coincided with a period in which people are coming to terms with the result of the U.K.’s referendum on the E.U., it was inevitable that this would become a common reference point for the real estate industry’s uncertain view of the future,” said PwC’s real estate director, Gareth Lewis. “But after taking the pulse of the real estate industry’s leaders, it’s clear that below the surface, there are complex and significant influences at play beyond today’s geopolitical issues. These are changes which are altering society and our industry’s view of the future role of the built environment. Technological disruption and the growing relevance of the sharing economy [are] shifting the center of gravity from financial asset to product, or more broadly ‘real estate as a service.’”

Despite high levels of uncertainty and change in Europe, however, respondents are only slightly less confident about their business prospects than they were last year. Just under half expect no change to confidence, profitability, or headcount in 2017. Furthermore, the report finds that capital flows will remain strong and investors will continue to value European real estate for yield in comparison to the risk/return expectations in other asset classes.

Sector-wise, the report notes that despite the challenges associated with investing in alternative real estate sectors, they are growing in popularity and are predicted to offer some of the best returns. Urbanization and changing consumer habits have paved the way for alternatives such as hotels, student housing, and assisted living facilities. Eight of the top ten sectors for investment prospects in 2017 relate to residential real estate—leaving traditional offices and shopping centers to be ranked among the riskiest assets.

Top Markets for Real Estate Investment and Development in 2017

According to the report, the top five European markets for real estate investment and development in 2017 are predicted to be the following: