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.

PROMOTED VIDEO
News
business
News
Mick Jagger performing at Glastonbury
people
Extras
indybest
Life and Style
beautyBelgian fan lands L'Oreal campaign after being spotted at World Cup
Sport
Germany's Andre Greipel crosses the finish line to win the sixth stage of the Tour de France cycling race over 194 kilometers (120.5 miles) with start in Arras and finish in Reims, France
tour de franceGerman champion achieves sixth Tour stage win in Reims
News
ebookA unique anthology of reporting and analysis of a crucial period of history
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

JQuery Developer (JQuery, C#, front-end, JQuery, UI, Tomcat)

£40000 - £45000 per annum: Harrington Starr: A Global Financial Service Organ...

Linux Systems Administrator - UNIX, Linux, Shell, Bash

£50000 - £60000 per annum: Harrington Starr: Linux Systems Administrator - UNI...

UNIX Systems Administrator - Oracle DBA, UNIX, Scripting

£40000 - £45000 per annum: Harrington Starr: UNIX Systems Administrator - Orac...

Linux Systems Administrator - (Support, Linux, UNIX)

£40000 - £55000 per annum: Harrington Starr: Linux Systems Administrator - (Su...

Day In a Page

The true Gaza back-story that the Israelis aren’t telling this week

The true Gaza back-story that the Israelis aren’t telling this week

A future Palestine state will have no borders and be an enclave within Israel, surrounded on all sides by Israeli-held territory, says Robert Fisk
A History of the First World War in 100 Moments: The German people demand an end to the fighting

A History of the First World War in 100 Moments

The German people demand an end to the fighting
New play by Oscar Wilde's grandson reveals what the Irish wit said at his trials

New play reveals what Oscar Wilde said at trials

For a century, what Wilde actually said at his trials was a mystery. But the recent discovery of shorthand notes changed that. Now his grandson Merlin Holland has turned them into a play
Can scientists save the world's sea life from

Can scientists save our sea life?

By the end of the century, the only living things left in our oceans could be plankton and jellyfish. Alex Renton meets the scientists who are trying to turn the tide
Richard III, Trafalgar Studios, review: Martin Freeman gives highly intelligent performance

Richard III review

Martin Freeman’s psychotic monarch is big on mockery but wanting in malice
Hollywood targets Asian audiences as US films enjoy record-breaking run at Chinese box office

Hollywood targets Asian audiences

The world's second biggest movie market is fast becoming the Hollywood studios' most crucial
Grindr founder Joel Simkhai: 'I've found love on my dating app - and my mum keeps trying to hook me up!'

Grindr founder Joel Simkhai: 'I've found love on my dating app'

Five years on from its launch and Grindr is the world's most popular dating app for gay men. Its founder Joel Simkhai answers his critics, describes his isolation as a child
Autocorrect has its uses but it can go rogue with embarrassing results - so is it time to ditch it?

Is it time to ditch autocorrect?

Matthew J X Malady persuaded friends to message manually instead, but failed to factor in fat fingers and drunk texting
10 best girls' summer dresses

Frock chick: 10 best girls' summer dresses

Get them ready for the holidays with these cool and pretty options 
Westminster’s dark secret: Adultery, homosexuality, sadomasochism and abuse of children were all seemingly lumped together

Westminster’s dark secret

Adultery, homosexuality, sadomasochism and abuse of children were all seemingly lumped together
A History of the First World War in 100 Moments: Dulce et decorum est - a life cut short for a poet whose work achieved immortality

A History of the First World War in 100 Moments

Dulce et decorum est: a life cut short for a poet whose work achieved immortality
Google tells popular music website to censor album cover art in 'sexually explicit content' ban

Naked censorship?

The strange case of Google, the music website and the nudity take-down requests
Howzat! 8 best cricket bats

Howzat! 8 best cricket bats

As England take on India at Trent Bridge, here is our pick of the high-performing bats to help you up your run-count this summer 
Brazil vs Germany World Cup 2014 comment: David Luiz falls from leader figure to symbol of national humiliation

David Luiz falls from leader figure to symbol of national humiliation

Captain appears to give up as shocking 7-1 World Cup semi-final defeat threatens ramifications in Brazil