Heavy losses by the hedge fund industry and associated financial sector have led to sharp falls in prime office rents in central London, according to data from consultancy NB Real Estate, as cited by media reports.

Rents in London’s West End district dropped from a peak of around £120 ($180.9) per square foot in 2007 to about £85 per cent by the end of last year, a fall of almost a third.

Up until the outbreak of the financial crisis, competition by hedge funds, private equity firms and other financial institutions for office space had driven up rents in the fashionable St James and Mayfair areas.

NB Real Estate said the collapse in fortunes of hedge funds has had a dramatic impact on the fortunes of 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. Vacancy rates for West End offices jumped by about 40 per cent in the last quarter of 2008, according to NB Real Estate, from 4.7 per cent to 6.6 per cent.

Rents on offices in the City also fell in 2008, although by a more modest 19 per cent as the credit crisis led to job losses and business failures in the financial services sector. Rents on prime City offices have fallen from £65 per sq ft at the end of 2007 to £52.50 per sq ft by the end of last year.