West End rents plummeted by nearly a third over the last year due to the collapse in fortunes of hedge funds, research from NB Real Estate has said.
Prime rents fell by 29% from £120/sq ft at the ends of 2007 to £85/sq ft by the end of 2008,’ the property consultancy said.
‘The boom in the hedge fund sector meant they paid scant regard to the property costs they were taking on,’ said James Gillett, NB’s director for Central London markets.
‘The sector’s high profitability meant that they were willing to substantially outbid the rest of the market to get their staff into the right space quickly.’
He said the falling rents are also only part of the story with the vale of incentives, such as rent free periods, increasing sharply.
Vacancy in the West End increased from 4.7% in the third quarter of last year to 6.6% by the end of the year.
By comparison vacancy in the City increased over the last quarter of 2008 from 9.6% to 11% and City of London rents fell by 19% as the credit crunch impacted on the financial services sector.
William Naunton, head of real estate at law firm Eversheds, said rents will be effected further by D2's 100,000 sq ft Fortress House at Savile Row which is due to complete imminently.
'The hammering of the hedge fund industry has led to a sharper than anticipated fall in West End office rents,' he said.
'We anticipate that the decline in rents will continue as Fortress House comes to the market and the impact of surplus space in the secondary market is felt.'