For a decade it was the preferred location for hundreds of hedge fund managers as they deserted the City and set up shop nearer to their well-heeled clients.

Making the move to Mayfair and St James’s, they would think nothing of paying more than £100 a square foot for a few floors inside a Georgian townhouse, driving rents ever higher as they bid against each other.

Property experts described the rents as “eye-popping”, but investors’ money was flooding in and fee structures were designed to capture 20 per cent of the profits, so managers believed that the bills could be shouldered easily.

Despite being so recent, those have quickly become the good old days. Demand for office space in Mayfair and St James’s has slumped as those fund managers experience a flood of redemptions from clients rattled by losses and frauds. Rents for office space in the area have fallen by 29 per cent over the past year, making it one of the worst hit in London, according to research by NB Real Estate, the property consultancy.

Some hedge funds – notably Bernard Madoff’s British operation – have closed. Others, which rented more space than they needed in expectation of strong growth, are looking for sublet tenants.

James Gillett, a director at NB Real Estate, said: “They’re clearly all suffering from the downturn in the market. A lot are putting stuff up for sale and a number are subletting to keep costs down.”

Several hedge funds, including Peloton Partners, Pentagon Capital Management and Trident European, have closed funds recently. Others, such as Pendragon and Endeavour, are downsizing and are said to have been forced to dispose of prime West End office space.

Meanwhile, landlords in the area have been slashing rents, the average per square foot having fallen from £120 at the end of 2007 to £85 last year.

True, rents have also fallen in the City, but only by 19 per cent, from £65 a square foot in 2007 to £52.50 at the end of last year. The number of empty properties in the West End is also soaring, up 40 per cent by the end of last year, and landlords are reported to be increasing incentives such as rent-free periods to attract tenants. The rise in empty properties in the City stood at only 14.6 per cent.

Mr Gillett said: “The boom in the hedge fund sector meant that they paid scant regard to the property costs they were taking on.

“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. That market has gone and agents are having to be realistic.

“Pendragon has been trying to dispose of 5,500 square feet on Berkeley Square, while Endeavour is trying to sublet 5,000 square feet on Mount Street. Eagle House let a floor on Jermyn Street in June for £102 a square foot and now another floor has come up, which is going for £85 a square foot.

“The light on the horizon is that a sharp rental correction will bring tenants into the market more quickly. There will be a point at which we see a flight to quality by tenants who will worry about an increase in rents and a potential squeeze on supply taking place over the medium term.

“Some big occupiers in the City are already researching moves over the next couple of years on this basis.”

So “location, location, location” is no longer the cry, it seems – an aspirational mantra sacrificed to the savage economic downturn.