The price of commercial office space in Mayfair and St. James's, the London districts famous for their concentrations of hedge fund and private equity managers, is already falling under the impact of the ongoing financial crisis.
According to reports, top rental prices in both areas were down GBP5 per square foot to GBP115 in the third quarter, while the annual cost of renting new or refurbished offices in the neighbourhoods is said a commercial property broker to have fallen 6.5 percent to GBP107.50 pounds per square foot over the six months to the end of September - and incentives such as rent-free periods lowered the net figure to GBP 95.96.
Property analysts believe the decline, which is being driven not just by the travails of the hedge fund and private equity industries but by the UK's slid into recession, on top of a real estate market correction underway well before mid-2007, is set to continue. Prime rents in the west end of London could fall to GBP80 per square foot by the end of 2009, according to research from CB Richard Ellis.
With industry members and analysts forecasting that more hedge funds will close because of performance issues and investor redemptions, the pressure on rental prices that sustained sky-high rental levels at the heights of the boom is likely to slacken further. Firms that previously reckoned Mayfair and St. James's beyond their financial means but that have come through the market turbulence well might want to look again.