(Bloomberg) -- Paris has beaten London as the most attractive European city for investors for the first time in more than a decade, as Brexit fears begin to taint the U.K. capital, according to a report.
The French city was ranked No. 1 for foreign direct investment by 37 percent of businesses in an Ernst & Young report published Monday. Britain’s departure from the European Union and the election of French President Emmanuel Macron were among the reasons Paris bumped London for the first time since the EY survey began in 2003. London came in second, followed by Berlin and Frankfurt.
The report, based on a survey of 502 companies and data from EY and International Business Machines Corp., showed FDI in Europe grew 10 percent last year, its lowest since 2013. While the U.K. topped the league tables with 1,205 of the 6,653 new FDI projects, the number was only 6 percent higher than in 2016, showing a slowdown in growth. France won 31 percent more investments in 2017 and projects in Turkey increased 66 percent.
“We’ve worked tirelessly to get London out of the doldrums of the ’90s and into the top spot as the best city in the world for business,” said Jasmine Whitbread, chief executive officer of London First. “This must be a rallying cry for us all to redouble our efforts and keep our capital at the top of the global charts.”
Brexit was one of four main risks affecting 2017 investor sentiment in Europe, according to the report. The biggest concerns were geopolitical instability, such as the recent U.S. steel and aluminum tariffs on the region, and a rise in populist feeling. The U.K., Germany and France were the most attractive countries overall for foreign investment.
One key Brexit-related impact was a decrease in the number of companies setting up or relocating their headquarters to the U.K. last year. In 2016, 51 percent of new headquarters in Europe were placed in Britain, while only 26 percent of businesses picked the country for their top hub in 2017.
A number of businesses are looking at moving headquarters and offices around Europe in response to the U.K.’s decision to leave both the single market and the customs union post-Brexit. Faced with the prospect of regulatory divergences and tariffs, businesses are trying to shore up their bases on both sides of the Channel to avoid being caught out.
While the Netherlands has been chosen by a number of entities as a post-Brexit base, including the European Medicines Agency, investment inflows fell 17 percent last year. One factor may be rising wages, which averaged 34.80 euros ($40.94) an hour in 2017. While wages are also growing in some central eastern European economies, they’re still far lower at 9.40 euros in Poland and 11.30 euros in the Czech Republic, according to Eurostat. The average hourly wage in the U.K. for 2017 was 25.70 euros.
With “protracted Brexit negotiations between the U.K. and mainland Europe, governments in Europe need to remember that it’s the relative attraction of the whole that keeps investment momentum,” said Andy Baldwin, EY area managing partner for Europe, the Middle East, India and Africa.
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