Shanghai is China's most promising city for investment and development as confidence in the real estate market shows signs of recovery, a report said.

A survey issued by Urban Land Institute has found a significant revival in market confidence among major cities in the Chinese mainland, and the top four cities in this year's list all scored higher this time than last year's highest-ranked city — Chengdu of Sichuan province.

The strengthened market sentiment indicates a growing confidence about China's economic outlook, and investors have noticed the real estate opportunities brought about by China's growing middle classes and its younger population.

The report credits Shanghai's top position to its maturing real estate market, which has more liquidity and less volatility than almost all other Chinese cities.

Suzhou of Jiangsu province is the second-most favorable city for both investment and development prospects, jumping 11 and 12 places respectively from last year.

As Shanghai's largest industrial satellite, Suzhou is a vibrant city in its own right and benefits from a substantial concentration of high-tech manufacturing, said Kenneth Rhee, CEO of Huhan Business Advisory (Shanghai) Co Ltd.

Beijing rose from ninth to third place for investment prospects and from 16th to fifth for development prospects. The capital city was favored by investors because of its well-developed office sector. The demand for Grade A office space is expected to continue rising, but the supply shortage won't ease until 2015.

Chengdu, which has topped the rankings for both development and investment prospects for the past two years, fell to seventh and eighth places respectively this year. But Rhee said the city's actual scores changed slightly, and its decline in the rankings is a result of the uplift in confidence among other Chinese major cities.