In 2016, hedge fund performance has gone up 3.3 percent, a small amount that has in turn led to asking rents in trophy buildings staying stagnant, and Class A rents increasing just two percent.
Jones Lang LaSalle has tracked the correlation between hedge fund performance and rental growth since 2000 and found that when times are good in the hedge fund market, landlords are optimistic and rents grow.
The August 2016 report from JLL shows that over the past 12 months, demand from hedge funds has been sluggish, which JLL believes is due to overall hedge fund performance, which while up slightly, is nowhere near typical numbers.
“We certainly believe it is a contributing factor to the softer market,” said Cynthia Wasserberger, managing director at JLL, on the the sluggish performance in the hedge fund sector. “They haven’t declined, but they aren’t rising with the rate or velocity, particularly at the high end of the market.”
Wasserberger, who compiled the report, noted the increasing concessions offered by landlords, who had to compete for the fewer tenants looking for space. She also noticed that one sector in particular was stepping up where financial services were falling off — the TAMI market.
Some of the bigger deals done this year at $100 psf more were TAMI companies, which have taken a bigger slice of the space typically scooped up by hedge funds and private equity firms.
By year’s end, when investor redemptions hit the funds, Wasserberger expects a clearer view of the sublease market to emerge, with more sublease spaces possible if funds shut down. She expects the number of deals at $100 psf and over to be “well below” the record-setting pace of last year, which saw 138 deals with $100 psf rents.