Canary Wharf faces City revival

While the Japanese financial services giant Nomura considers a move to the City, and JP Morgan intends a shift the other way to Canary Wharf, property analysts try to discern a trend. James Thompson weighs the evidence

Ahead of the first banks opening there in the early 1990s, Canary Wharf in east London was touted as the brave new world of London's huge financial services industry. Over the next 15 years, many of the world's biggest banks moved their headquarters to the Isle of Dogs which became a fierce rival to the City of London.

But yesterday Canary Wharf was rocked when it emerged that Nomura, the Japanese financial services giant, is set to move its biggest UK office, along with 4,000 employees, back to the City as early as late 2010. Nomura yesterday entered into exclusive talks to move into Watermark Place, a 525,000 square-foot glass building being built on the side of the Thames.

Nomura's management believe the City is a more prestigious location for an international bank of its size and will be better for staff and clients. Shortly after Lehman Brothers folded in September 2008, Nomura acquired a large number of its European employees and took a two-year lease on more than a third of the 1 million sq ft building in Docklands.

Nomura's move follows the announcement by US bank Morgan Stanley in January that it had exercised an option to break a lease for a quarter of its office space in Canary Wharf from February 2010 – 10 years early.

While both moves appear to signal the waning of Canary Wharf's star, property practitioners said no clear pattern of a shift in demand for office space between both locations had emerged. Supporting this argument, JP Morgan, the banking giant, announced in November that it intends to move its European headquarters in the opposite direction to Canary Wharf around the end of 2012.

Peter Damesick, the head of UK research at CB Richard Ellis, says: "I am not sure we have got enough evidence to say a fundamental change is happening [between the two locations]. Over the last 12 months, there has been a more subdued market affecting both the City and Canary Wharf."

Furthermore, the property specialist CB Richard Ellis, revealed yesterday that rents for prime property in Canary Wharf have actually fallen by less than that in the City and Mayfair, the heart of the UK's hedge fund industry, over the past year.

That said, London's commercial property market has undergone huge changes over the last 18 months that has left a radically changed landscape. While commercial property agents, such as King Sturge, CBRE and Knight Frank, cite an uptick in leasing activity from the dreadful doldrums of the first quarter, a recovery in rental values is still a few years away across the capital.

Ed Stansfield, a property economist at Capital Economics, says that rental values tend to lag unemployment levels in the business and financial services sector by nine to 12 months. Capital Economics forecasts that the rental market in the City, including Canary Wharf, and West End markets will fall by between 45 per cent and 50 per cent from peak to trough. Mr Stansfield said: "We are probably no more than half-way through the adjustment in rental values."

In fact, the cost of prime office space in Canary Wharf is still considerably cheaper than in London's Mayfair and the City. According to CBRE, prime rent in Canary Wharf fell to £35 per sq ft in the second quarter of 2009 from £47.50 per sq ft in the last three months of 2007. But this compares with a drop to £43 per sq ft from £65 per sq ft over the same period in the City of London.

In fact, the release of Nomura's space on to the Canary Wharf market could actually give rents in Canary Wharf a shot in the arm, as higher vacancy levels could drive down price. Mark Bourne, the head of the London office at property services firm King Sturge, says: "With the space being released back into the market at Canary Wharf, vacancy levels will go from about 8 to 14 per cent and that will mean that Canary Wharf [vacancy] levels will start to match the City."

It is a similar story of falling rents in Mayfair, which has been hit hard by the tornado that has swept through the hedge fund industry during the financial crisis. CBRE said the value of rents in Mayfair had fallen to £80 per sq ft from £120 since the last quarter of 2007.

The capital values of commercial property have also tumbled. According to IPD, the market research firm, if negative, its June data will mark the two years of consecutive monthly capital value declines in the UK commercial property markets. While the downturn of the early 1990s was far longer, the fall in capital values was far less severe than the 43.7 per cent drop over the 23 months to the end of May 2009. The good news is that all property firms are seeing signs of improvement, albeit coming off a low base. William Beardmore-Gray, a partner and head of the city agency at Knight Frank, the commercial property firm, said: "In the first quarter, the central London take-up of commercial offices was one of the worst on record, but we have definitely seen an uptick from that position in the second quarter."

The impact of Nomura's move on London's wider commercial property market remains unclear. Yesterday, Canary Wharf Group, the company behind much of the area's commercial property including Nomura's office space, said that, as of 31 December 2008, 99.7 per cent of its 7.9 million sq ft of investment portfolio was let.

While the debate about the best location will continue to rage, there is no doubt the Nomura news is a coup for City of London. Mr Bourne says: "I think that from a City versus Canary Wharf perspective, having Nomura stay in the City is great for the City.

News
people
Sport
FootballGerman sparks three goals in four minutes at favourite No 10 role
News
Rumer was diagnosed with bipolarity, attention deficit hyperactivity disorder and post-traumatic stress disorder: 'I was convinced it was a misdiagnosis'
peopleHer debut album caused her post-traumatic stress - how will she cope as she releases her third record?
Sport
A long jumper competes in the 80-to-84-year-old age division at the 2007 World Masters Championships
athletics
PROMOTED VIDEO
Sport
Radamel Falcao was forced to withdraw from the World Cup after undergoing surgery
premier leagueExclusive: Reds have agreement with Monaco
Arts and Entertainment
'New Tricks' star Dennis Waterman is departing from the show after he completes filming on two more episodes
tvHe is only remaining member of original cast
Life and Style
Walking tall: unlike some, Donatella Versace showed a strong and vibrant collection
fashionAlexander Fury on the staid Italian clothing industry
Arts and Entertainment
Gregory Porter learnt about his father’s voice at his funeral
music
News
ebooksAn unforgettable anthology of contemporary reportage
Arts and Entertainment
tvHighs and lows of the cast's careers since 2004
Life and Style
Children at the Leytonstone branch of the Homeless Children's Aid and Adoption Society tuck into their harvest festival gifts, in October 1936
food + drinkThe harvest festival is back, but forget cans of tuna and packets of instant mash
Sport
Lewis Hamilton will start the Singapore Grand Prix from pole, with Nico Rosberg second and Daniel Ricciardo third
F1... for floodlit Singapore Grand Prix
New Articles
i100
Life and Style
Couples have been having sex less in 2014, according to a new survey
life
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Senior BA - Motor and Home Insurance

£400 - £450 Per Day: Clearwater People Solutions Ltd: **URGENT CONTRACT ROLE**...

Market Risk & Control Manager

Up to £100k or £450p/d: Saxton Leigh: My client is a leading commodities tradi...

SQL Developer - Watford/NW London - £320 - £330 p/d - 6 months

£320 - £330 per day: Ashdown Group: The Ashdown Group have been engaged by a l...

Head of Audit

To £75,000 + Pension + Benefits + Bonus: Saxton Leigh: My client is looking f...

Day In a Page

Scottish referendum: The Yes vote was the love that dared speak its name, but it was not to be

Despite the result, this is the end of the status quo

Boyd Tonkin on the fall-out from the Scottish referendum
Manolo Blahnik: The high priest of heels talks flats, Englishness, and why he loves Mary Beard

Manolo Blahnik: Flats, Englishness, and Mary Beard

The shoe designer who has been dubbed 'the patron saint of the stiletto'
The Beatles biographer reveals exclusive original manuscripts of some of the best pop songs ever written

Scrambled eggs and LSD

Behind The Beatles' lyrics - thanks to Hunter Davis's original manuscript copies
'Normcore' fashion: Blending in is the new standing out in latest catwalk non-trend

'Normcore': Blending in is the new standing out

Just when fashion was in grave danger of running out of trends, it only went and invented the non-trend. Rebecca Gonsalves investigates
Dance’s new leading ladies fight back: How female vocalists are now writing their own hits

New leading ladies of dance fight back

How female vocalists are now writing their own hits
Mystery of the Ground Zero wedding photo

A shot in the dark

Mystery of the wedding photo from Ground Zero
His life, the universe and everything

His life, the universe and everything

New biography sheds light on comic genius of Douglas Adams
Save us from small screen superheroes

Save us from small screen superheroes

Shows like Agents of S.H.I.E.L.D are little more than marketing tools
Reach for the skies

Reach for the skies

From pools to football pitches, rooftop living is looking up
These are the 12 best hotel spas in the UK

12 best hotel spas in the UK

Some hotels go all out on facilities; others stand out for the sheer quality of treatments
These Iranian-controlled Shia militias used to specialise in killing American soldiers. Now they are fighting Isis, backed up by US airstrikes

Widespread fear of Isis is producing strange bedfellows

Iranian-controlled Shia militias that used to kill American soldiers are now fighting Isis, helped by US airstrikes
Topshop goes part Athena poster, part last spring Prada

Topshop goes part Athena poster, part last spring Prada

Shoppers don't come to Topshop for the unique
How to make a Lego masterpiece

How to make a Lego masterpiece

Toy breaks out of the nursery and heads for the gallery
Meet the ‘Endies’ – city dwellers who are too poor to have fun

Meet the ‘Endies’ – city dwellers who are too poor to have fun

Urbanites are cursed with an acronym pointing to Employed but No Disposable Income or Savings
Paisley’s decision to make peace with IRA enemies might remind the Arabs of Sadat

Ian Paisley’s decision to make peace with his IRA enemies

His Save Ulster from Sodomy campaign would surely have been supported by many a Sunni imam