Chemical Bank pulls out of Canary Wharf

CHEMICAL BANK, the US investment bank, has pulled out of its agreement to move its head office to Canary Wharf in the London docklands and is taking space in Alban Gate, MEPC's City development, instead.

But it is still in discussions with the administrators about taking space in Canary Wharf for its back office operations.

MEPC announced yesterday that Chemical Bank had taken 164,000 sq ft at Alban Gate. This will become the main trading floor for Chemical Bank and Manufacturers Hanover, with which it merged last year.

Before the merger Manufacturers Hanover had contracted to take 240,000 sq ft at Canary Wharf. But John Zilter, head of Chemical Bank's UK operations, said the group had terminated the contract 'some months ago' when it became clear that the banks which financed the scheme would not fund the fitting out of the building.

American Express, which was due to take 330,000 sq ft, has given notice that it is applying to a court to have the contract terminated but Texaco, which had taken 240,000 sq ft, is still in discussions with the administrators.

Stephen Adamson, of Ernst & Young, joint administrator of Canary Wharf, said: 'We regret that we have been unable to reach terms with Chemical Bank on the leasing of a number of floors.

'But we are hopeful that we can conclude negotiations with them on the leasing of space in excess of 100,000 sq ft at Canary Wharf. Our discussions with Texaco concerning the postponed move to Westferry Circus are progressing satisfactorily.'

The lease to Chemical Bank means that MEPC has now filled more than half the 375,000 sq ft of office space available. Dibb Lupton Broomhead, the solicitors, took up 38,000 sq ft of space in May. MEPC said there was interest in the remaining space.

Under the terms agreed Chemical Bank can break the lease next August and at the end of the fifth and 15th years. Ian Wattis, of MEPC, said the break after one year was 'unusual but not unique'. He added that Chemical Bank was starting fitting out the premises in December, which made it unlikely they would exercise the option next year.

Neither side would reveal the terms of the contract. It is likely, however, that Chemical Bank has been given a rent-free period of between two and three years and the rent is slightly below the asking rent of pounds 34 a square foot.

The letting was welcomed in the City, which marked MEPC's shares up 13p to 252p.

Gary Baker, property analyst with County NatWest, said Alban Gate was costing MEPC pounds 5m a year in rates, insurance and heating simply to keep it empty. The let should cut that by pounds 3m, while rental income would eventually reach pounds 5m a year.

'It secures an unchanged dividend,' he added.