LONDON -
London is no longer a magnet for real estate investors, now that the credit crunch has put the brakes on easy lending and threatened the fortunes of the financial sector.

According to the latest annual real estate trends survey from PriceWaterhouseCoopers and the Urban Land Institute, which collates opinions from 485 industry professionals, London has fallen out of the top 10 European cities for both investment and development prospects for the first time.

The British capital was ranked 15th out of 27 European cities for investment prospects, while for development prospects it was ranked 13th. Last year, London made second place for investment and fourth place for development.

Moscow and Istanbul are now the new darlings of the sector, ranked first and second respectively for both investment and development prospects. Whereas London is facing a slump similar to America’s, with house prices declining and consumer confidence down, Russia and Turkey offer strong economic growth prospects and buying opportunities across residential, office and retail. (See “Blimey! London Property Slides”)

“Investors had two real concerns about the U.K.,” said John Forbes, head of U.K. real estate at PriceWaterhouseCoopers. “One was the broader economy–are things actually going to get worse? And the second, which is key, was the extent to which London is dependent on the financial services industry.”

Survey respondents said that they were concerned by the exposure of the London office sector to financial firms, but there was also the sentiment that this would spread to personal spending. London’s retail property sector also got the highest “sell” rating out of all 27 cities covered in the survey, echoing wider issues with commercial property in Britain as credit conditions tighten. (See “REIT British Land…Slides”)

PriceWaterhouseCoopers’ Forbes told Forbes.com that there was now a real appetite for emerging markets, with high oil prices boosting Russian spending power in particular. And even as Western markets suffer from an end to the days of cheap credit, some of the survey respondents believed it would help bring distorted real estate markets back to normal.

“A number of the people interviewed for the report felt that one of the drivers for real estate markets had been the availability of debt,” said Forbes. “So the financial engineering of deals had been in some ways more important than real estate fundamentals.”