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City outrage at being sold down the river

Corporation of London rounds on Canary Wharf as cheap rents entice financial institutions to Docklands. Paul Rodgers reports
A FURIOUS row has broken out between the Corporation of London and Canary Wharf in the wake of the decision by investment bank BZW to shift some of its operations from the City to Docklands.

The corporation, the local authority for the City, has accused Canary Wharf management of breaching a gentlemen's agreement not to poach financial institutions.

Michael Cassidy, chairman of the corporation's policy committee, said Sir Peter Levene, the Canary Wharf chairman, assured him in September that the investment bank's £200m move was a one-off that would not be repeated. "On that basis I accepted it," he said. "But now they are targeting precisely that market."

Sir Peter denied the charge, saying his agents respond to requests from clients, but do not solicit them. "There's no way we're going after companies to persuade them to move out of the Square Mile," he said. "That's rubbish. I had a very clear understanding with Michael Cassidy and we have kept to that understanding in every way."

But property agents, including one acting for Canary Wharf, said the low rents were attracting a number of potential clients. "Canary Wharf is doing exactly what any developer would do who had a partly let development," said one.

Four organisations now looking for new premises could end up in Docklands: the futures and options market Liffe, ABN Ambro, Deutsche Bank and Westdeutsche LB. The European Bank for Reconstruction and Development is also considering a move out of the City to cheaper premises. Canary Wharf already hosts Credit Suisse, Morgan Stanley and Bear Stearns.

Docklands' advantages are low rents and large floor plates. It is the only London district with vacant offices of more than 100,000 square feet. The City has only two top grade premises with more than 30,000 sq ft available, but boasts better communications and transport links.

To counter Docklands' attractions, Mr Cassidy wants to relax the City's planning procedures; 50 large developments are awaiting consent. But banks burdened with an estimated £32bn in bad loans from the last property boom are reluctant to back new developments, even if they do get approval.

Nick Baucher, a partner with chartered surveyor Hillier Parker, suggested many listed sites in the City should be opened for development.

"Some of those buildings should be knocked down despite the screams of English Heritage," he said. "And a lot of the rest should be converted to livelier uses."

Many landlords shy away from turning older buildings into restaurants or shops, preferring to leave them vacant rather than write down their book value.

Sir Peter and Mr Cassidy will meet after Easter to settle their differences. Both want their districts to complement each other, and Mr Cassidy hopes to draw up a protocol about which businesses should be located where.

He views London Docklands as an appropriate location for back-office operations, including the settlement departments, but not for front offices such as trading floors.

But Sir Peter said it was not his place to tell customers that they cannot move certain departments. "It's up to the client to decide," he said.

Research commissioned by the corporation shows that clustering financial institutions in a tight geographical area is a key element in the City's success in the global market.

Mr Cassidy pointed to a report by the City Research Project which found that Wall Street has suffered from having up to a third of its financial institutions move to cheaper premises in mid-town Manhattan and outlying boroughs.

Squaring off against the Square Mile

Docklands The City

Average rent per square foot £15 less holiday £35

Total office space (sq ft) 13m 81.5m

British Rail Stations 0 7

Underground/ DLR stations 4 11

Travel time from Waterloo 30 minutes 4 minutes

Fibre-optic networks 1 4