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Hedge-Fund Demand for London Offices Drops to Lowest Since 2012

Hedge funds and private equity firms took the least amount of office space in central London since the start of 2012 in the first quarter, according to broker Cushman & Wakefield Inc., as sputtering global growth and increased regulation deterred startups.

The slump follows four years of growing demand for offices from alternative investment firms who pay some of the highest rents in the U.K. capital, said Elaine Rossall, the broker’s head of central London research.

Investor preference for large hedge funds and the mounting cost of complying with regulations has led to a slowdown in startups. The industry contracted in Europe last year for the first time in at least 15 years, according to data from Eurekahedge, and in the three months through March almost twice as many funds closed as new ones opened. London as a financial hub faces uncertainty as Britain prepares to vote on its future in the European Union.

“There is a degree of caution at present and we are seeing prospective occupiers take a pause and await the outcome of factors such as the Brexit vote,” said Andrew Tyler, head of West End office agency at Cushman & Wakefield. “As such, we would anticipate a slower second quarter. However, the supply shortages remain in the market and I would anticipate accelerated uptake in the second half of the year.”

Hedge funds and private equity firms leased almost 88,000 square feet (8,175 square meters) of office space in the first three months of the year, down from about 160,000 square feet in the same period in 2015. A total of about 575,000 square foot of space was leased by the money managers last year, with Marshall Wace LLP completing the biggest deal, a 43,031 square-foot letting at 131 Sloane Street in Knightsbridge.

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