London’s hedge funds, PE firms and other specialist investment managers are moving earlier, and widening their search areas, as competition intensifies for a rapidly shrinking pool of prime Mayfair offices, according to Knight Frank.

The company is tracking 1.8 million square feet of active requirements from niche financial occupiers across 33 searches, representing a 5.9% increase from a year earlier. Hedge funds account for 252,000 square feet of that demand, while private equity firms are seeking a further 235,000 square feet.

Only around 342,000 square feet, or 19% of the total requirement, is currently under offer or in negotiations, leaving approximately 1.5 million square feet of demand still looking for suitable premises.

The shortage is particularly acute in Mayfair and St James's, traditionally important locations for hedge funds and specialist investment managers. New-build vacancy in the two districts has fallen to just 0.4%, compared with 1.5% across the wider West End.

Knight Frank said there was no immediately available new or refurbished building large enough to accommodate an 80,000-square-foot requirement at the end of the second quarter. Across London, half of the submarkets tracked by the property adviser now have new-build vacancy rates of 1% or less.

The lack of available space is encouraging financial firms to secure premises earlier and consider expansion requirements further ahead. Some are also widening their geographical searches to find suitable offices.

Leasing activity during the first half of 2026 was nevertheless lower than in recent years. Niche financial firms completed 32 transactions covering 343,265 square feet, representing a 59% decline in total space leased and a 41% fall in the number of deals compared with the first half of 2025.

Knight Frank attributed much of the reduction to the absence of the very large transactions that boosted previous years' figures. Two individual lettings of more than 100,000 square feet were completed in both 2024 and 2025, whereas no deal of that scale has been recorded so far in 2026.

The transactions that have taken place demonstrate the continued preference among investment firms for high-quality accommodation. Verition Advisors leased 49,287 square feet at Lucent on Sherwood Street, Sona Asset Management took 41,055 square feet at Pegasus, GHO Capital agreed to 28,408 square feet at 33 Jermyn Street and Pharo Management committed to 21,358 square feet at 105 Victoria Street.

All hedge fund transactions recorded during the first half involved either new-build or comprehensively refurbished offices. The equivalent figure for private equity transactions was 90.4%.

Future supply is also being absorbed well ahead of completion. Around one million square feet of office space in the West End Core is scheduled to complete in 2027, but approximately 40% has already been pre-let.

Among the commitments already secured are Ares Management's 123,968-square-foot headquarters at 1 Hanover Street and Blackstone's 231,737-square-foot commitment at Lansdowne House in Berkeley Square. Additional space is also subject to advanced negotiations.

The outlook becomes considerably tighter beyond 2027. Only 184,054 square feet is currently scheduled for completion across the West End Core between 2028 and 2030, with 111,379 square feet already committed.

That leaves approximately 73,000 square feet of unallocated new space for a financial sector that currently has around 1.5 million square feet of outstanding requirements.

The imbalance is particularly significant given that the long-term average annual take-up of new and refurbished offices in the West End Core is around 348,000 square feet.

Prime rents are expected to reflect the shortage. Knight Frank forecasts that rents for the best West End offices could rise by almost 20% to more than £230 per square foot by 2030 as hedge funds, private equity firms and other specialist managers compete for a limited supply of high-quality space.

For hedge funds in particular, the combination of expanding operations, limited development and rising rents is making office strategy an increasingly important consideration as firms seek to secure space for future growth.