City office space under threat as personified by Canary Wharf exodus

The pattern of office working is changing and nowhere is its effect on commercial property being felt more strongly than in London’s Docklands’ Canary Wharf.

A once thriving financial centre

The development of the wharf into a thriving financial centre just outside the City of London breathed new life into a run-down legacy of the days when London was a major shipping port, transforming the once poverty-stricken location.

The transformation was the brainchild of international developers and was conceived well before anyone had even thought the world would be turned upside down by a major pandemic. The resulting shift in the way people adapted to it – using technology to enable working from home (WFH) with Teams and Zoom conducting business meetings and customer services remotely – has hit commercial office occupancy rates hard.

These dockside property developments were risky even in the 1980s, that was until a critical mass of financial institutions started to move into the shiny glass towners at the Wharf. It was initially too cut-off from the London business and financial centre, too far away from where the wealthy bankers, lawyers and accountants traditionally did business. But this changed later as transport links were improved and these services moved in.

Property crash of the 1990s

The development came down with a mighty crash in a commercial property crisis of 1992 but the Canadian developer, Olympia & York, bought it back from the ashes and set about selling the office development idea hard. With new transport links including the Docklands Light Railway, a new tube station, boat transport access and an a city airport, and the project developed a momentum of its own.

It was hailed as a triumph of London’s post-industrial world, a child of Margaret Thatcher’s city revolution. The giant steel and glass towers were taken up by the leading banks and city institutions, while every day, hordes of workers used the gleaming new transport links to fill the massive floor plates of these symbols of London’s financial success.

WFH establishes a pattern

Today, post-Covid, it’s all looking a tad different. What looks like becoming a newly established pattern of office working, the WFH hybrid model, has changed all the success that went before. The working week for capitals around the world has become one of work at home for one, two or even three days, while the balance is spent in the office.

You don’t have to be a property genius to see that the effect of this is to dramatically reduce the space these great financial institutions need to operate their businesses in. Surveys show that to date, London has been one of the centres most affected by WFH.

People are commonly staying home Mondays and Fridays and travelling into work in between. The result is the once packed-to-overcrowding transport links are now under used for much of the time and the service infrastructure of retail outlets for workers, the coffee shops and the restaurants, the clothing and footwear stores, are all suffering substantially.

At first people were sceptical that WFH would not last, that people would gradually drift back to their commuter schedules, back to their offices lives full-time after Covid subsided, and all would be back to normal. That this did not happen has surprised many and left commercial property owners licking their wounds and wondering how to adapt.

Reduced demand for space

A study by estate agent Knight Frank and another by international management consultants McKinsey and Co, find that at lease 50 per cent of all large, multinational companies are planning to reduce their office space as their workforces’ needs and preferences have altered radically in a matter of a couple of years.

The result is a dramatic reappraisal of the values of commercial properties in most major cities around the developed world. Schroders Investment Management claims that the value of UK commercial office property has lost over 20 per cent of its value since June 2022, driven it says by the WFH trend.

The employers of today, in a post-pandemic world, are likely to be looking for smaller, more flexible spaces. Open plan will be the order of the day with everyone, including senior staff, working closely together, and in many cases sharing desks and meeting spaces. In a world of mobile working, an office full of staff every day may be a thing of the past.

Once a mark of prestige to have an office location in Canary Wharf, it could become a sign of being left behind, out on a limb and stuck in a location that is becoming no longer fashionable? That’s the danger for Canary Wharf.

Valuation downgrades

The Canary Wharf Group, owned by Qatar’s sovereign wealth fund and Brookfield Asset Management, has had the embarrassment of recently being downgraded by Moody’s the international business analysis and credit ratings agency, noting that the company would in future have difficulty in filling and ultimately selling its offices “without offering substantial discounts”.

The exodus

What’s more, Moody’s itself looks like it might join the Canary Wharf exit. There it currently has around 1200 employees and is said to be seeking to reduce its current footprint of 170,000 sq ft., though it declined The Daily Telegraph’s request for comment on its office plans.

The Moody’s threat to depart comes after major blow to the centre as one of the most visible iconic buildings, HSBC’s glass tower, will be vacated as the Bank announced that in 2027 it will abandon its Docklands tower for one back in the City of London.

The 45-storey HSBC skyscraper will move its staff base to a smaller office at the former BT head office near St Paul’s, while “Magic Circle” law firm Clifford Chance last year also announced it was leaving the Docklands for the City of London. In addition, Barclays has sublet 500,000 sq ft of space at its Canary Wharf offices.

Credit Suisse is another bank trying to sub-let empty space at its Canary Wharf headquarters.

The effort to adapt

The Canary Wharf Group also declined to comment on its plans, but it is rumoured that it is now attempting to reinvent itself as a home for life sciences as it seems there’s a chronic shortage of suitable laboratory space.

Efforts to turn the location into a shopping and leisure destination appear to be struggling as one shop worker told The Guardian: “Mondays and Fridays are dead. This shop used to take a fair bit before Covid but now everything’s changed.”

Despite the Group’s efforts, adding shops, bars and restaurants over recent years, landscaping between its glass-and-steel towers, creating a public art trail, and free events aimed at families, it is struggling to shake off the wharf’s sterile and chilly atmosphere.

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