HSBC’s exit is a sign that Canary Wharf has been struggling to recover from the pandemic

8 Canada Square in London, which houses HSBC’s global headquarters, and bears the HSBC logo, is a symbol for Canary Wharf’s status as a financial centre around the world.

The decision of the bank to move away from the east-end Docklands to a more centrally located location is a reflection of the declining appeal the city’s business district has for finance companies following a transformational shift in work habits.

Mark Stansfield said, “It’s another blow for a part London that has been disproportionately hit since the pandemic started.” Mark Stansfield is a senior director with commercial real estate data provider CoStar. Many of the big banks here are reducing their office footprints.

Canary Wharf’s reputation as the global hub of banking is in doubt. The future of Credit Suisse is uncertain after its near-collapse and rescue this year by UBS, a rival.

This tower-dotted neighbourhood, which was developed after Margaret Thatcher’s Big Bang financial reforms in 1986, has long been criticized for being sterile, and too far away from London’s vibrant areas. As the demand for office space in London’s most desirable districts decreases, more attractive areas are now competing to fill it. HSBC informed staff on Monday it expects to leave Canary Wharf by late 2026. It prefers Panorama St Paul’s, a former BT office in the City of London.

Other banks such as Barclays and Citigroup have also been consolidating operations at Canary Wharf. They are closing offices and subletting floors.

Marcus Phayre Mudge, property fund manager for Columbia Threadneedle said Canary Wharf’s problems were partly due to its historical overdependence on tenants in the financial services sector. Since the area was developed in the 1980s during the boom of computer trading, the space requirements for big banks have decreased.

Since then, they have adopted new technologies and flatter screens. Bankers who work long hours are now adopting remote working practices which became common during the pandemic. In contrast, areas like the West End have more diverse industries such as retail, tech and fashion.

CoStar reports that more than 1 million square feet extra of space has become available in Docklands since the pandemic. Analysts claim that the London office market is split. There’s a strong demand for buildings with sustainable credentials, but a slump in interest for other buildings.

Matthew Pointon, senior economist at Capital Economics, said that many firms downsize to make the City more attractive. He cited the better transport connections and the proximity of cultural institutions and restaurants in the historic financial districts. If you are downsizing, you will probably be able to get more space in the City.

Some believe that HSBC’s exit will trigger a larger exodus, which will be beneficial to central London’s real estate sector.

James Neville of property consultancy Allsop said that HSBC’s announcement was “fantastic news” for central London developers. He believes that more companies will buy “pre-lets” for a premium price, as supply of top-tier central London buildings is still limited. The Docklands has one of the highest office vacancy rates in London at 15.5 per cent, according to CoStar, against as little as 3 per cent in some parts of the West End and a central London average of 9 per cent.

Credit Suisse moved to Canary Wharf in 1991, taking over the 21-storey One Cabot Square. Just before Covid, the building was given a major facelift. The executive floors were spruced.

In recent years, the bank has made several rounds of cuts that have left many floors unused. Before UBS rescued the bank, executives had begun to reassess its global real estate footprint, which included Cabot Square. The takeover that was completed in this month is expected to result in thousands of job losses in London and could have implications for the future of Canary Wharf.

The French bank SocGen invested heavily when it moved to seven floors in the 27-storey One Bank Street building in 2019. However, the bank has sublet some space since then in response an increase in homeworking.

Barclays moved its investment bankers out of 5 North Colonnade, one of the two buildings they occupied in Canary Wharf last year and concentrated their workforce in One Churchill Place. This 32-storey building was completed in 2005.

Citigroup also plans to bring all of its 10,500 Canary Wharf employees together under one roof. The Wall Street bank bought the 42-storey, 200-metre-high tower at 25 Canada Square in 2019 for £1.2bn as part of its global strategy to not rent but own major office buildings.

After the Canary Wharf refurbishment, which is scheduled to take place in 2025, the bank will not need its two other offices due to their global hybrid working policies. Staff can work from home up to two full days.

Citigroup’s investment to refit 25 Canada Square, and Morgan Stanley’s commitment to their office following a two-year search for other potential bases was seen as endorsements of the area.

The European Bank for Reconstruction and Development, in a sign of its continued support for Docklands and the Square Mile, has relocated their staff from the Square Mile into the top 13 floors in the 26-storey Five Bank Street.

Moody’s, a rating agency, downgraded Canary Wharf Investment Holdings’ debt in May. The reason given was a “difficult funding and operating environment for real estate firms”. The report also mentioned Canary Wharf’s PS1.4bn debt, which needs to be refinance in 2024 or 2025. Clifford Chance, the last major law firm in Canary Wharf, is set to move in 2028 to a “net zero carbon” City of London office in Aldermanbury Square, to the north-east of St Paul’s Cathedral, that is less than half the size of its current home.

Clifford Chance, HSBC and other companies have said that sustainability was a major factor in the decision to move into new buildings. Analysts say they are taking advantage of lease expirations to look for more energy-efficient building to help them achieve their net zero goals.

Phayre Mudge said that “a lot of the towers [in Canary Wharf] were built 15 to 20 years ago.” They are well maintained, but there are new heating and cooling methods that were not used in the past.

Canary Wharf has also been hit by an insolvency of high profile after 5 Churchill Place collapsed last month. The 12-storey building, owned by Chinese property developer Cheung Kei Group, was formerly home to Bear Stearns.

Canary Wharf Group, a Canadian private equity company Brookfield, and Qatar Investment Authority bought the group in 2015 for a total of £2.6bn. They have sought to reduce their dependence on tenants in financial services.

The group is committed to building on the estate what it calls “Europe’s largest life sciences campus”, after attracting tenants like Genomics England, Barts Health NHS Trust, and start-ups. The group also opened a life science laboratory measuring 40,000 square feet.

In the last three years, there have been more than 3,500 residents on the estate. Three years ago, there were none. The company has developed an affordable housing program for those who earn less than £60,000 per year. It also plans to build infrastructure, including a new school that will serve the residential community.

Canary Wharf’s annual report states that by 2022, 54% of tenants will be in the financial sector. The report stated that “wherever possible, steps are taken to minimize or avoid the material consequences of this concentration.”

It will be difficult to change the occupancy mix in the area due to the dominance of industry.

Neville said that everyone has been talking about what is going to become of Canary Wharf. There are other options [than office space] that they have to consider, but the sheer size of this space is going to be challenging.