UBS agrees deal to build London's largest office block

UBS underscored the growing confidence in the banking sector yesterday as it agreed a deal for a new London headquarters which, when completed, will be the City's largest office complex.

The office, to be developed on the Swiss bank's existing site by the estate's owner, British Land, and the private equity group Blackstone, will cost about £340m to develop. The site, at the aging 4 and 6 Broadgate, will cost the bank an initial rent of £54.50 per square foot – 11 per cent more than the £49 paid by BlackRock Investment Management to its landlords, Canary Wharf Group and Exemplar Developments, to rent the nearby Drapers Gardens, which was agreed in February.

UBS's new 700,000 sq ft building is subject to a successful planning application, which is expected to be submitted later this year.

"We are delighted at this significant commitment by UBS to the City and Broadgate in particular," said Chris Grigg, the chief executive of British Land. "The transaction demonstrates the enduring appeal of this important City of London office estate. At the same time, the new building will enhance the overall quality of Broadgate while generating an attractive development return." UBS refused to comment.

The commitment by the bank comes two weeks after it reported forecasting-busting second quarter results. The Geneva-listed UBS said that earnings-per-share had come in lower than during the first three months of the year, but the performance was described by its chief executive, Oswald Grübel, as "a good result in a volatile market". The European Union's recent banking stress tests showed UBS in good health.

Yesterday's agreement comes a week after research published by real estate adviser Jones Lang LaSalle showed that City of London office rents have jumped by 5.3 per cent during the second quarter, largely led by shortages in supply. UBS's deal includes provisions for rent increases in line with inflation, and an 18-month rent-free period.

The deal comes as rival JP Morgan says it is still undecided over its commitment to a new headquarters in the Docklands. The US bank agreed a deal in late 2008 for the development of a twin tower site in the East London site, which is already home to Barclays, HSBC and Credit Suisse.

The bank has been irritated that criticism of the banking system has not abated since the new coalition came into office, after last year warning the previous administration that it was considering scrapping the project over tax hikes and an orchestrated campaign of "banker bashing" in the run-up to the general election.

JP Morgan declined to comment yesterday. In a note to employees last month, the bank said it had no immediate plans to alter its presence in the UK.