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Hedge-Fund Tenants Set for Record Growth in London’s Mayfair

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Hedge funds and private-equity firms are on track to lease a record amount of space in London’s Mayfair & St James’s neighborhoods this year as an influx of wealthy investors makes the city a more attractive location.

“There’s a higher than average amount of space under offer in Mayfair and St James’s and a large proportion of that is from hedge funds and private equity firms,” Elaine Rossall, head of London research at broker Cushman & Wakefield Inc., said by phone. “There’s a number of new entrants to the market also seeking space.”

Alternative-investment firms have been increasing their share of London’s financial-services leasing market since 2011 as investment-banking employment shrinks and asset management grows. They accounted for 29 percent of all new office space rented in Mayfair and St James’s this year, 1 percentage point more than in 2014, the data show.

“High-net-worth individuals and sovereign wealth funds have been coming in, so therefore London becomes an appealing market for them to grow their business,” Rossall said. “We’re also in a much better economic environment.”

Alternative-investment firms leased 75,000 square feet (6,970 square meters) of workspace in the neighborhoods in the first half, the broker said in a report on Friday. That’s equivalent to about 50 percent of the space leased by the industry last year, which was the most ever.

The private-equity firms and hedge funds typically lease space in the West End district, which includes Mayfair and St James’s, because they want to be based in a prestigious area, Cushman & Wakefield said.

Priciest Market

Property costs are a “relatively low percentage of hedge funds’ overall costs,” Rossall said in the report. London’s West End is the most expensive property market in the world for occupancy costs. West End office rents were about 120 pounds a square foot in March compared with 63.50 pounds in the City of London financial district, according to Cushman.

Europe-focused hedge funds attracted more money than the U.S. and Asia combined in the first five months of 2015, according to a June report from Evestment, a research firm that tracks hedge-fund flows. Almost half of global investors plan to increase their allocation to private equity in the next two years, according to a survey by EY.

Davidson Kempner Capital Management, TPG and HarbourVest were among the alternative-investment funds leasing space in the first half, the report shows.

“The move to the Jermyn Street location stems from the firm’s requirement for additional space to accommodate business growth and desire to bring all staff into one unified office,” HarbourVest, which agreed to lease almost 11,000 square feet of office space in St James’s, said by e-mail.

Marshall Wace LLP, a $20.3 billion London-based hedge fund, agreed the largest new lease by an alternative investment firm in the first half. It will move to a 43,031 square-foot office in Knightsbridge from its existing location near Trafalgar Square. The company declined to comment.

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