Hedge Funds Help Push Up Rents for Best Office Space in London's West End

Office rents in London’s West End district, the world’s most expensive location in which to lease space, climbed for the first time in three years as hedge funds competed for a shrinking amount of available space in Mayfair, Jones Lang LaSalle Inc. said.

Annual rents for the best offices climbed to 85 pounds ($130) a square foot in the second quarter from 75 pounds in the previous three months, according to a study compiled by the Chicago property broker’s London-based researchers.

“We have witnessed a real sea change in the West End over the past couple of months,” said Jonathan Evans, head of Jones Lang’s West End leasing and development agency. Prime office rents will rise to 87.50 pounds a foot by the end of the year, he predicted.

The credit crisis halted most new developments, leaving prospective tenants with limited choices for prime office space in the district, which is London’s main hub for restaurants, theaters and stores. The amount of space available to lease in the West End fell by 3 percent in the second quarter to 6.2 million square feet, Jones Lang estimates.

Top rents are concentrated on the neighborhoods of Mayfair and St. James’s, which are favored by hedge funds and buyout firms because of their proximity to prospective private banking clients. The area is also close to the high-end residential neighborhoods to the west and southwest.

Average prime rents peaked at a record 115 pounds a foot in the second quarter of 2008 as financial-services firms competed for the best space. The credit crisis caused rents to slump by half, if incentives such as rent-free periods offered by landlords are included.

Savile Row

Hedge funds accounted for two of the biggest deals in the second quarter, the broker said. Eton Park Capital Management LP leased space on Savile Row in Mayfair for 85 pounds a foot and Park Square Capital LLP agreed to pay 82.50 pounds a foot for offices on nearby Stratton Street.

The supply shortage and prospects of higher rents have persuaded developers, including British Land Co., Great Portland Estates Plc and Land Securities Group Plc, to revive development projects before lining up tenants for the space.

To contact the reporter on this story: Simon Packard in London at packard@bloomberg.net.

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