Cost vs. Location Considerations: A Look at London Hedge Fund Real Estate
Last week, we took a closer look at the current state of the New York City hedge fund real estate market. Today, we're crossing the pond to provide some updates on new developments in the UK real estate arena.
London remains Europe's number one destination for hedge funds and private equity managers, with Mayfair and St. James's being the most-preferred neighbourhoods. But have mounting economic pressures and increased interest from overseas for property pushed funds away from these areas? How are these factors affecting the popular "hedge fund alley" section of Curzon Street and Berkeley Square in Mayfair?
As of the last quarter of 2011, 51% of hedge funds and investment management firms based in London's West End area were operating in office space in Mayfair and St. James's. This figure is down significantly from five years ago, when 69% of those shops were located in those same areas, according to property consulting firm Cushman & Wakefield. This shows that London-based hedge funds are increasingly moving away from the traditional core areas, as they have quickly become the city's most expensive office neighbourhoods. In fact, after Hong Kong, rental prices in London's Mayfair and St James’s districts south of Oxford Street and West of Regent Street are now the second highest in the world.
So, where are all the funds moving to?
To avoid paying exorbitant leases, many investment firms are seeking out the more manageable rental figures per square foot on and around Oxford Street. Additionally, there are a growing number of hedge funds setting up shop in areas such as Victoria and the district immediately north of Oxford Street. Rents for premier properties in these neighbourhoods are currently averaging around £65 per square foot, a stark contrast to the £100+ rates we're seeing in Mayfair and St. James's right now. Iconic buildings such as the Shard at London Bridge or the Heron Tower in the City are also becoming more and more attractive to hedge fund managers. Office space in the Shard is about 30% cheaper than comparable buildings in Mayfair.
Well-established investment firms are in a better position to move away from Mayfair right now, since they have an existing base of investors and other stakeholders that are familiar with them and willing to venture outside of this core real estate area in order to meet with them. That said, there are still many firms who are willing to pay top dollar for this premier location in the heart of London’s most sought after area for the hedge fund industry. Despite these costs, most start-up funds also prefer to be located in or near Mayfair to give them a better opportunity to create awareness amongst time-pressed investors who are unlikely to travel far between meetings, especially for firms with whom they are not yet very familiar.
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