City partners focusing on London's Alternative Investment Market (AIM) are watching the market closely after the volume of initial public offerings (IPOs) fell by 32% during 2007.

PricewaterhouseCoopers' (PwC's) 2007 annual IPO report – released last month – revealed that AIM saw 220 IPOs in 2007, compared with 325 in 2006, resulting in a drop in value of E4bn (£3bn) to hit E9.5bn (£7.5bn). The fall in activity meant money raised in the London markets as a whole generally fell by 7% to E39.08bn (£31bn).

Allen & Overy corporate partner Richard Browne admitted that some firms were worried about activity levels but told Legal Week: "It is just a condition of the market. AIM targets faster growing new companies and people are less likely to invest when there is a downturn."

However, Norton Rose corporate finance partner Stephen Rigby (pictured) argued: "The average size of a deal is [still] up. Investors are more interested in larger asset-backed deals and my impression is that there are larger deals out there."

The report also found that despite the slight drop in overall activity, the City was still by far the preferred choice for international companies listing in Europe last year.

While the volume of international IPOs fell by 5% over the year, London markets saw 81% of the 126 non-European IPOs, with much of the interest coming from emerging markets such as Russia and India.

In contrast, the US capital markets hosted just 50 international IPOs during 2007, raising under E9bn (£7.14bn) – compared to the E21.4bn (£16.9bn) raised in Europe.

Outside Europe, the research revealed the growing opportunities for firms with presences in Asia, as the Chinese markets saw the value of offerings in the region increase by 60% from E47bn (£37bn) in 2006 to E76bn (£60bn) in 2007. Meanwhile, volume increased from 138 listings in 2006 to 240 in 2007.

Commenting on the trend, Browne said: "China is growing so rapidly and is more outward looking – it is extremely attractive."