London’s Canary Wharf Takes Brunt of Real-Estate Pain
Kanebridge News
Share Button

London’s Canary Wharf Takes Brunt of Real-Estate Pain

Empty offices, remote working and corporate tenants fleeing to buzzier areas hit the 30-year-old business district

By HUMZA JILANI
Thu, Jul 13, 2023 7:15amGrey Clock 4 min

LONDON—Three decades ago, London remade a derelict shipping yard at Canary Wharf into a forest of glass-and-concrete skyscrapers in a bid to mimic U.S. financial hubs.

Now the 128-acre banking district east of central London is suffering a problem also plaguing U.S. cities: emptying office buildings.

Last month, HSBC Holdings, the U.K.’s largest financial firm, said it was leaving its 1.1-million-square-foot headquarters, known as the HSBC Tower, for a smaller building in central London. The move followed a decision by law firm Clifford Chance to relocate to central London and major office-space downsizings by Barclays and Société Générale, among others.

Already, Canary Wharf and its surrounding area have an availability rate of 17.1%, roughly the size of an empty Empire State Building, compared with 10.7% for central London, according to data provided by UBS.

Bonds for Canary Wharf Group—the company that owns most of the buildings in the area—are trading at a deep discount, with yields over 16%. Moody’s lowered its credit rating to junk last month.

The troubles at Canary Wharf show how the rapid rise of remote work has reverberated unevenly across global property markets. While the hollowing out of skyscrapers has become a familiar theme in U.S. cities since the pandemic, Europe’s office market has held up relatively well, as workers have been far more eager to return to the office.

But London has some problems that are familiar to American real estate.

The return-to-office rate for London stood at 65% in February, a figure that put it between New York City, which stood at 49%, and Paris, which was at 85%, according to JLL, a property-services company.

Canary Wharf has caught the brunt of the problems in London’s office market.

Work-from-home and the cost of upgrading old office space to meet environmental regulations “puts Canary Wharf at a disadvantage,” said Zachary Gauge, head of European real-estate research at UBS.

Canary Wharf was a byproduct of a changing London economy in the 1980s. Transformations in global shipping decimated the city’s sprawling blue-collar dockyards, the West India Docks. Margaret Thatcher’s government deregulated the financial industry in a move known as the “big bang,” and banks were hungry for towers that were larger than low-slung London’s standard fare.

While it wasn’t a great property investment—the original developer went bankrupt—skyscrapers sprouted through the 1990s and Canary Wharf became a rare slice of Manhattan in London.

Canary Wharf attracted tenants from London’s traditional financial district, known as the City of London, which lies several miles west. It became a global byword for urban renewal. Former New York Mayor Michael Bloomberg made it his go-to analogy when promoting plans for Hudson Yards in the late 2000s.

“Canary Wharf beat out the City in the 1990s and 2000s because it catered to American firms who wanted high-rise buildings for high-skilled labor,” said Anthony Breach, an analyst at the Centre for Cities, a think tank.

A generation later, its towers are far from new, while sleek modern skyscrapers have shot up in the buzzier streets of the City and other parts of central London.

“High rates of work from home means that employers need to offer some desirability and vibrancy to bring workers back,” said Marie Dormeuil, an analyst at Green Street, a commercial-real-estate advisory firm.

Top-end commercial-property rents in London’s more fashionable West End rose 8% a year over the past three years, buoyed by hedge funds and private-equity firms piling into Georgian townhouses, while rents in Canary Wharf have mostly stayed the same, according to Green Street. Average office-space rent in Canary Wharf is $69 a square foot, compared with $95 in the City and more than $165 in the West End, according to data from Knight Frank, a U.K. real-estate brokerage.

With most of the district held by Canary Wharf Group—a joint venture between Qatar’s wealth fund and private-equity giant Brookfield—or by the Qatari fund directly, the development has space for long-term planning. “The Canary Wharf Group is very good at making its own weather,” said Tony Travers, who directs the London School of Economics’ London centre.

Shobi Khan, Canary Wharf Group’s chief executive, has outlined a plan for a “Canary Wharf 3.0” that would thrive off of residential rents, entertainment offerings and biotech.

The group plans to construct a 750,000-square-foot life-sciences centre, which it says will be the largest commercial lab in Europe. Rents in the sector can bring in a 70% premium compared with office space, according to Savills, a British real-estate-services company.

As for the residential sector, 3,500 people inhabit the group’s 2,200 units there, compared with zero tenants three years ago. Two thousand more units are under construction.

A combination of high-end retailers, restaurants and music and arts festivals have brought in extra revenue. Foot traffic on evenings and weekends is up by 50% compared with pre pandemic levels, according to data from the city’s transport authority.

But a full makeover will be a difficult task to pull off. Higher interest rates and lower revenue mean that Qatar and Brookfield may need to put up more cash to cover the costs of refurbishment and construction.

Another risk: Fewer financiers and lawyers could mean little demand for the stores and amenities. “You could see a downward spiral as people start to leave,” said Breach, the think tank analyst.

The developers will likely need to lure in lots of people like Justin Walker, a tax accountant who works in JPMorgan Chase’s office there.

“I hated how sterile Canary Wharf looked when I first got here,” he said, “But, the place has grown on me, it’s more residential now, and a lot more vibrant.”



MOST POPULAR

Consumers are going to gravitate toward applications powered by the buzzy new technology, analyst Michael Wolf predicts

Chris Dixon, a partner who led the charge, says he has a ‘very long-term horizon’

Related Stories
Money
Why Prices of the World’s Most Expensive Handbags Keep Rising
By CAROL RYAN 05/03/2024
Money
The Lessons I’ve Learned From My Friends’ Expensive Divorces
By JULIA CARPENTER 05/03/2024
Lifestyle
Only 5% of U.S. Foundations Invest for Impact, Study Finds
By ABBY SCHULTZ 02/03/2024
Why Prices of the World’s Most Expensive Handbags Keep Rising

Designers are charging more for their most recognisable bags to maintain the appearance of exclusivity as the industry balloons

By CAROL RYAN
Tue, Mar 5, 2024 3 min

The price of a basic Hermès Birkin handbag has jumped $1,000. This first-world problem for fashionistas is a sign that luxury brands are playing harder to get with their most sought-after products.

Hermès recently raised the cost of a basic Birkin 25-centimeter handbag in its U.S. stores by 10% to $11,400 before sales tax, according to data from luxury handbag forum PurseBop. Rarer Birkins made with exotic skins such as crocodile have jumped more than 20%. The Paris brand says it only increases prices to offset higher manufacturing costs, but this year’s increase is its largest in at least a decade.

The brand may feel under pressure to defend its reputation as the maker of the world’s most expensive handbags. The “Birkin premium”—the price difference between the Hermès bag and its closest competitor , the Chanel Classic Flap in medium—shrank from 70% in 2019 to 2% last year, according to PurseBop founder Monika Arora. Privately owned Chanel has jacked up the price of its most popular handbag by 75% since before the pandemic.

Eye-watering price increases on luxury brands’ benchmark products are a wider trend. Prada ’s Galleria bag will set shoppers back a cool $4,600—85% more than in 2019, according to the Wayback Machine internet archive. Christian Dior ’s Lady Dior bag and the Louis Vuitton Neverfull are both 45% more expensive, PurseBop data show.

With the U.S. consumer-price index up a fifth since 2019, luxury brands do need to offset higher wage and materials costs. But the inflation-beating increases are also a way to manage the challenge presented by their own success: how to maintain an aura of exclusivity at the same time as strong sales.

Luxury brands have grown enormously in recent years, helped by the Covid-19 lockdowns, when consumers had fewer outlets for spending. LVMH ’s fashion and leather goods division alone has almost doubled in size since 2019, with €42.2 billion in sales last year, equivalent to $45.8 billion at current exchange rates. Gucci, Chanel and Hermès all make more than $10 billion in sales a year. One way to avoid overexposure is to sell fewer items at much higher prices.

Many aspirational shoppers can no longer afford the handbags, but luxury brands can’t risk alienating them altogether. This may explain why labels such as Hermès and Prada have launched makeup lines and Gucci’s owner Kering is pushing deeper into eyewear. These cheaper categories can be a kind of consolation prize. They can also be sold in the tens of millions without saturating the market.

“Cosmetics are invisible—unless you catch someone applying lipstick and see the logo, you can’t tell the brand,” says Luca Solca, luxury analyst at Bernstein.

Most of the luxury industry’s growth in 2024 will come from price increases. Sales are expected to rise by 7% this year, according to Bernstein estimates, even as brands only sell 1% to 2% more stuff.

Limiting volume growth this way only works if a brand is so popular that shoppers won’t balk at climbing prices and defect to another label. Some companies may have pushed prices beyond what consumers think they are worth. Sales of Prada’s handbags rose a meagre 1% in its last quarter and the group’s cheaper sister label Miu Miu is growing faster.

Ramping up prices can invite unflattering comparisons. At more than $2,000, Burberry ’s small Lola bag is around 40% more expensive today than it was a few years ago. Luxury shoppers may decide that tried and tested styles such as Louis Vuitton’s Neverfull bag, which is now a little cheaper than the Burberry bag, are a better buy—especially as Louis Vuitton bags hold their value better in the resale market.

Aggressive price increases can also drive shoppers to secondhand websites. If a barely used Prada Galleria bag in excellent condition can be picked up for $1,500 on luxury resale website The Real Real, it is less appealing to pay three times that amount for the bag brand new.

The strategy won’t help everyone, but for the best luxury brands, stretching the price spectrum can keep the risks of growth in check.

MOST POPULAR

Consumers are going to gravitate toward applications powered by the buzzy new technology, analyst Michael Wolf predicts

Chris Dixon, a partner who led the charge, says he has a ‘very long-term horizon’

Related Stories
Property
Why Stars Are Renting Out Their Homes for Dirt Cheap
By ASHLEY WONG 28/11/2023
Property
It’s One of America’s Most Expensive Cities, and Home Buyers Can’t Get Enough
By LIZ LUCKING 01/02/2024
Money
Love and Deceit: Work-From-Home Era Spawns ‘Pillow Talk’ Insider Trading
By CORINNE RAMEY 10/01/2024
0
    Your Cart
    Your cart is emptyReturn to Shop