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.

Start your day with The Independent, sign up for daily news emails
ebooksAn introduction to the ground rules of British democracy
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

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

iJobs Job Widget
iJobs Money & Business

Recruitment Genius: Sales Executive / Foreign Exchange Dealer - OTE £40,000+

£16000 - £40000 per annum: Recruitment Genius: A Foreign Exchange Dealer is re...

SThree: Experienced Recruitment Consultant

£20000 - £40000 per annum + OTE + Incentives + Benefits: SThree: Established f...

SThree: Trainee Recruitment Consultant

£20000 - £25000 per annum + OTE 40/45k + INCENTIVES + BENEFITS: SThree: The su...

Recruitment Genius: Collections Agent

£14000 - £16000 per annum: Recruitment Genius: This company was established in...

Day In a Page

The long walk west: they fled war in Syria, only to get held up in Hungary – now hundreds of refugees have set off on foot for Austria

They fled war in Syria...

...only to get stuck and sidetracked in Hungary
From The Prisoner to Mad Men, elaborate title sequences are one of the keys to a great TV series

Title sequences: From The Prisoner to Mad Men

Elaborate title sequences are one of the keys to a great TV series. But why does the art form have such a chequered history?
Giorgio Armani Beauty's fabric-inspired foundations: Get back to basics this autumn

Giorgio Armani Beauty's foundations

Sumptuous fabrics meet luscious cosmetics for this elegant look
From stowaways to Operation Stack: Life in a transcontinental lorry cab

Life from the inside of a trucker's cab

From stowaways to Operation Stack, it's a challenging time to be a trucker heading to and from the Continent
Kelis interview: The songwriter and sauce-maker on cooking for Pharrell and crying over potatoes

Kelis interview

The singer and sauce-maker on cooking for Pharrell
Refugee crisis: David Cameron lowered the flag for the dead king of Saudi Arabia - will he do the same honour for little Aylan Kurdi?

Cameron lowered the flag for the dead king of Saudi Arabia...

But will he do the same honour for little Aylan Kurdi, asks Robert Fisk
Our leaders lack courage in this refugee crisis. We are shamed by our European neighbours

Our leaders lack courage in this refugee crisis. We are shamed by our European neighbours

Humanity must be at the heart of politics, says Jeremy Corbyn
Joe Biden's 'tease tour': Could the US Vice-President be testing the water for a presidential run?

Joe Biden's 'tease tour'

Could the US Vice-President be testing the water for a presidential run?
Britain's 24-hour culture: With the 'leisured society' a distant dream we're working longer and less regular hours than ever

Britain's 24-hour culture

With the 'leisured society' a distant dream we're working longer and less regular hours than ever
Diplomacy board game: Treachery is the way to win - which makes it just like the real thing

The addictive nature of Diplomacy

Bullying, betrayal, aggression – it may be just a board game, but the family that plays Diplomacy may never look at each other in the same way again
Lady Chatterley's Lover: Racy underwear for fans of DH Lawrence's equally racy tome

Fashion: Ooh, Lady Chatterley!

Take inspiration from DH Lawrence's racy tome with equally racy underwear
8 best children's clocks

Tick-tock: 8 best children's clocks

Whether you’re teaching them to tell the time or putting the finishing touches to a nursery, there’s a ticker for that
Charlie Austin: Queens Park Rangers striker says ‘If the move is not right, I’m not going’

Charlie Austin: ‘If the move is not right, I’m not going’

After hitting 18 goals in the Premier League last season, the QPR striker was the great non-deal of transfer deadline day. But he says he'd preferred another shot at promotion
Isis profits from destruction of antiquities by selling relics to dealers - and then blowing up the buildings they come from to conceal the evidence of looting

How Isis profits from destruction of antiquities

Robert Fisk on the terrorist group's manipulation of the market to increase the price of artefacts
Labour leadership: Andy Burnham urges Jeremy Corbyn voters to think again in last-minute plea

'If we lose touch we’ll end up with two decades of the Tories'

In an exclusive interview, Andy Burnham urges Jeremy Corbyn voters to think again in last-minute plea