The Financial Times' magazine on foreign direct investment, fDi, has recently presented its shortlist of European Cities & Regions of the Future 2008/2009.

This list is the result of a questionnaire on inward investment and plans for economic development that fDi sent to over 1,000 European cities and regions during the summer of 2007.

The evaluation criteria were divided into 7 key categories: economic potential, business friendliness, quality of life, human resources, costs, infrastructure and foreign direct investment.

Central Eastern European regions and cities rank high in two categories: economic potential and cost effectiveness.

Economic potential: Luxembourg is the winner, but CEE ranks high

When evaluating the economic potential of cities and regions, fDi criteria were the following: government economic priorities, richest cities in 2020 according to the PwC survey, economic sentiments, new industrial orders, employment growth, inflation, GDP growth and trade as % of GDP. For the last indicators Eurostat was used as a source of data.

As we can see below, the top 10 best economic potential ranking is dominated by the CEE regions/ cities with only three western European cities and regions on the list.

Source: fDi magazine

According to the ranking the brighter economic outlook in the CEE region is in Tallinn (major Estonian city and the port), followed by Pardubice region - a very important industrial centre in Czech Republic.

Then we have Kraków - Polish Silicon Valley and 150th city on the list of the richest cities in 2020 and Southern Poland - the name anticipates Silesia region, the most industrialised region in Poland.

On the eight and nine position we have other Baltic capital cities - Vilnius and Riga ranked high for its dominant role in the country's economic profile.

And finally, the last place on the list is taken by Bulgarian town Gorna Oryahovitsa - major producer of food and centre of light industry in the country.

The economic potential, if realised, will support development of the property market in the long term.

Cost effective: CEE takes all and Poland is the leader

When compiling the list of the most cost effective regions and cities, the fDi magazine was taking into consideration office occupancy cost, office cost per workstation, minimum wage, cost of call to the USA, cost of electricity, industrial gas prices, labour cost growth, average wage cost and average prices of 122 goods and services.

Here are the top most cost-effective European regions and cities:

Source: fDi magazine

The list of the 10 most cost-effective European regions consists only of the CEE regions/ cities as in this region costs are much lower. Poland leads the ranking with four strongest economic centres in the country, followed by Prague and Budapest.

The cost-effective ranking implies much more important fact - the most cost effective cities are likely to attract high FDI inflow, mainly off shoring companies, due to the low operational costs.

Lack of CEE regions and cities in the ranking of the most business friendly, the best infrastructure and the best human resources should not be surprising given the emerging characters of those places and the fact that they compete with more developed cities and regions in terms of free market advancement.

In terms of human resources not only number of science and technology graduates or % of people in education, but also public expenditure on each student on overall spending on education (% of GDP) was taken into consideration, which significantly lower the chances of CEE regions and cities.

It also impacted the top 25 most attractive for FDI list.

Top 25 most attractive for FDI

When evaluating FDI attractiveness the following criteria has applied: total and inflow of FDI as % of GDP, tax breaks and other incentives, corporate expansion plans, promotion strategy and initiatives, unique selling points, development strategy and plans, investor confidence, FDI deals and most significant investments in 2007.

In the ranking top 25 most attractive for FDI, CEE regions and cities haven't achieved the best results. More advanced places won and the three first positions belong to London, Flanders and Paris respectively.

Tallinn ranks 6th and that is the highest position among CEE, followed by Miskolc in Hungary with 16th position, Indjija in Serbia (18th on the list) and Razgrad in Bulgaria (19th on the list). On 22nd position we have Warsaw and on 25th Budapest.

While Warsaw or Budapest presence in the ranking doesn't surprise, higher positions of relatively unknown towns can cause some confusion. In fact Razgrad and Indjija were predominately praised for its open and quality administrative services and good infrastructure. Miskolc, the third largest city in Hungary, on the other hand was awarded mainly for strong FDI inflow.

Top 50 European cities: Overall

In the top 50 European cities London ranks first followed by Paris and Berlin. London has maintained its leading position from the year before and it looks like the city will remain dominant city in the Europe, at least for the foreseeable future.

Source: fDi magazine

The ranking includes 16 cities from the UK, six from Germany and four from Netherlands.

From the CEE region we have Tallinn (11th), Warsaw (28th), Prague (36th), Kraków (44th), Wrocław (45th), Budapest (47th) and Bratislava (50th). Taking into consideration that 1,000 cities and regions were evaluated these are very good results.

Those cities are likely to remain leaders in the region in the nearest future.

Top 25 regions: Overall

The British regions are unquestionable winners of this ranking, followed by Belgium.

Source: fDi magazine

Among the CEE we have strong, 7th position of Southern Poland (Silesia) and Bratislava region on 21st position. The last position in the ranking belongs to Kosice Region in Slovakia awarded for massive economic restructuring that has been implemented in the last years and to Pardubice Region in Czech Republic praised for its economic potential.

Conclusion

The fDi ranking is evidence that emerging and developing regions and cities in the CEE have found their place on Europe's business map. Given the tough competition, especially from much more advanced and developed cities, the CEE cities have been evaluated favourable.

They have been noticed predominately for its economic potential and cost effectiveness, which indicates further economic expansion driven by the FDI inflow.

Tallinn ranks very high overall and ahead other awarded CEE countries. Poland with its four most dynamic economic centres (Warsaw, Kraków, Wrocław and Silesia) has been also positively evaluated by the fDi panel.

Prague and Pardubice Region represented Czech Republic in the ranking achieving overall good ranks, similarly to Bratislava and Kosice Region.

Awards for relatively unknown cities like Razgard, Indjija or Mikolec could indicate interesting places to invest in, offering attractive investment opportunities.

Property investors with a long-term strategy might want to take closer look at the awarded places, especially those with great economic potential. Economic development in the future in most case would equals to development of property market.

Following the announcement of the shortlist, now we're looking forward to see the 2008/09 winners in the regional category: the cities of the future in Western Europe, Northern Europe, Eastern Europe, Central Europe and Southern Europe.