Mayfair means money. Together with its neighbour St James's, the prime spot on the Monopoly board has - in recent years - ended its genteel decline and returned to the opulence of its 1920s heyday. Hedge funds moved in, scores of exclusive clubs and restaurants opened and offices were converted back into some of London's most desirable homes. But as the recession bites, fears are growing that its renaissance may be short-lived.

Mayfair and St James's have become synonymous with the hedge fund industry, a third axis of financial power alongside the Square Mile and Canary Wharf. The financial sector accounted for over half of the take-up of offices on its blue plaque littered streets in 2007, and 46% last year. Of this, property consultancy Jones Lang LaSalle estimates that hedge funds claimed up to half, with the remainder being taken by asset managers and private equity. Their influx drove up office rents to record levels of up to £120 per square foot.

Meanwhile, the area's most prestigious restaurants, formerly haunts of "ladies who lunch", filled up with bankers and dealers tapping away at their BlackBerrys. Some luxury retailers also opted for its quieter streets over Sloane Street's glitz. But with widespread talk of the demise of the hedge funds, could Mayfair and St James's be set to struggle?

Anecdotal evidence suggests cause for concern. "I've had customers from several funds coming in and saying that they are closing - and these employ 30 or 40 people," one local fashion retailer reveals. But Philip Siddall of headhunters Fox Partnership believes the sector's demise has been overstated. His Mayfair-based company supplies staff for hedge funds, asset managers and financial advisers.

"A few firms are closing. But the remaining hedge funds, wealth managers and private banks are still here," he says. "There have been some high-profile casualties, but others are utilising new opportunities, for example in distressed debt." Siddall believes they are down, not out.

Others are less optimistic. "Eventually we will see a much smaller, much more regulated hedge fund industry," says Adrian Crooks, a director of the West End arm of Jones Lang LaSalle. "Fees are really being squeezed." Office rents have fallen sharply in response to the retrenchment and are expected to hit a low of £75 per square foot, but this would still be among the highest in London.

So will there be an exodus from Mayfair and St James's? Big-name funds Brevan Howard and DE Shaw have already quit the area for cheaper Baker Street. But there is a big incentive for smaller funds to stay together - the need to be on the "investor roadshow". People with cash to invest have a fixed amount of time to see funds to decide where to put their money. Fear is that by moving too far away, you miss out. Over the long run, however, funds may find another, cheaper area in which to cluster.

That would be miserable news for the retailers that have descended on Mayfair to tempt this wealthy elite. Marc Jacobs started the trend, opening his first UK store on Mount Street, then a sleepy back street. He was followed by Balenciaga, Stella McCartney on Bruton Street and Christian Louboutin, famed for its scarlet-soled shoes.

But any exodus could accelerate another trend: the resurgence of residential property in Mayfair. Since the 1990s, about a million square feet has been returned to residential use, with Grosvenor Square hoped to be the next prime site to revert to its former use. Even if new money may be set to leave, old money and foreign money remain kind to Mayfair and St James's.

A stroll around reveals a mixed bag. The Ritz, the Wolseley and Scott's are still buzzing. Ferraris and Porsches remain the cars of choice and hairdresser Jo Hansford is heaving with well-heeled customers. But Mount Street is quiet, with few shoppers, mostly from overseas. In the windows of estate agency Wetherell, a home on Upper Brook Street has been let at £10,000 per week, but an apartment on Carlos Place is marked down - to £3,750,000.

But Giles Clark, executive director for London of landlord Grosvenor Estates, which owns about 100 acres in western Mayfair, cautions against writing off the area: "There are no visible signs of distress. One of the exciting things about Mayfair is that it is always changing, always able to cope with the new."

Vital statistics

Retail rents: Old Bond St (per sq ft)
2003: £420
2007: £725
Now: £800

Office rents, prime location (per sq ft)
2000: £85
2007: £112.50
Now: £85

Two-bedroom flat
2000: £559.000
2007: £999,000
Now: £970,00

Number of businesses
3150

Number of directors
2316

Average time trading
22 years

Leading firms by sector
Business services (567 companies)
Real estate (311)
Food and drink (241)
Retail (216)

Oldest businesses
The Royal Society, Carlton House Terrace, 1660
The Punch Bowl, Farm Street, 1750

Source: 192.com, business and residential directory website

Still smiling: view from Savile Row

John Hitchcock joined tailor Anderson & Sheppard when he was 16. Now 61, he is managing director and head cutter. Fans of the Mayfair shop's handmade suits include Prince Charles and Bryan Ferry. After 80 years in Savile Row, the shop moved to Old Burlington Street in 2005. Hitchcock says: “We're doing fine, because we only do bespoke garments. There are still lots of people earning good money, and we dress all types, not just bankers. The exchange rate is good for our foreign customers. Americans and Europeans are effectively getting a 30% discount. Our rent is a lot lower than it was on Savile Row and moving hasn't hurt business. My son [Steven Hitchcock] has just started up on the Row and he is sharing a shop to keep expenses down.”

Previously in the Evening Standard we have looked at how Soho is faring in the recession