The retrenchment of the struggling hedge fund industry has led to a rapid fall in rents paid for the most expensive offices in central London.

Rents for prime offices in London’s West End dropped by almost a third last year, according to NB Real Estate, a property consultancy, dropping from a peak of about £120 per sq ft in 2007 to £85 per sq ft by the end of 2008.

During the boom years leading up to the credit crisis, hedge fund and private equity managers competed to secure the most prestigious offices in the Mayfair and St James areas of central London.

This led to a huge increase in the prices paid for plush surroundings on top floors with city views.

Just as the credit crisis was unfolding in the summer of 2007, Permal Investment Management paid a record rent of about £140 per sq ft on a floor at 12 St James’s Square.

It topped other rents paid by fund managers such as Ziff Brothers Investments, GLG Partners and Warburg Pincus, according to NB Real Estate, which all agreed deals approaching £110 per sq ft in the past two years.

However, the agency now says that the collapse in fortunes of hedge funds has had a dramatic impact on the fortunes for office landlords, with the sharp fall in headline rents exacerbated by a rise in the value of incentives such as lengthy rent-free periods to attract a dwindling pool of potential tenants

Financial Times, The Times, Daily Telegraph, The Independent