Banking on Canary Wharf

JP Morgan's new 60-storey, 2.5 million square foot New York City headquarters will have biometric scanners to enter the building, a pub called Morgan's, AI circadian rhythm lighting that adjusts throughout the day, and workspaces that are pumped with three times the amount of normal fresh air. The FT wrote a fantastic piece putting the building in context last month.

When it comes to sheer scale and grandiosity, few buildings in NYC can match it – but one in London soon might. The US banking giant is drawing up plans for a "2 million-square-feet-plus" headquarters in Canary Wharf that would become London's largest office building, taking the crown from the 1.2 million sq ft 22 Bishopsgate, Bloomberg reported yesterday. Other options are on the table, including a move to a new building in the City of London or a refurbishment of its existing premises at 25 Bank Street, the newswire added.

The news is yet more evidence of the upswing underway in the east London financial district. Valuations of some of the Canary Wharf estate's largest office buildings are once again rising, Canary Wharf Group reported last month. Barclays and Morgan Stanley are staying put. In the past couple of months, the FT has separately reported on large deals from the likes of Visa, Revolut and Deutsche Bank.

Meanwhile, Canary Wharf's vacancy rate dropped from 13.7% to 11.2% in the second quarter, according to Knight Frank data. That puts the vacancy rate just 0.7% above the long-run average, thanks largely to recent significant absorption of secondhand space.

Negative territory

It's been a subdued summer in the UK housing market, and sentiment dipped again through August, according to the latest RICS Residential Market Survey. Measures of new buyer enquiries and agreed sales both fell deeper into negative territory.

Agents expect largely flat sales rates at both the three-month and twelve-month time horizon. The rise in listings we've seen in recent months has run out of steam, and the metric of new appraisals slipped into negative territory.

Flip to the back of the report for commentary from survey respondents and a clear theme emerges. The Budget is mentioned eleven times, with exasperated agents pointing out that speculation over tax rises, particularly changes to stamp duty, have made buyers nervous.

The limits of affordability

Dysfunction in the rental market continues. The RICS survey suggests that tenant demand remains pretty steady, while the data suggests that landlords are selling up in increasing numbers. The net balance for new landlord instructions, in which anything below zero is a contraction, fell to -37%. That's the weakest reading since the onset of the pandemic in April 2020.

As a result, a net balance of +27% of respondents reckon rents will rise in the coming three months. Respondents are pencilling in roughly 3% growth in rents at the national level – a figure that would be larger were it not for the limits of affordability.

Separate figures from Moneyfacts this week revealed that buy-to-let borrowing costs have eased to a three-year low. Meanwhile, available products have doubled to 4,597 since September 2022.

“This shouldn’t be mistaken for a resurgence in landlord demand,” Simon Gammon of Knight Frank Finance tells the FT. “What we’re really seeing is lenders working hard to win business in a challenging environment.”

Lenders traditionally charged a premium on buy-to-let mortgages compared with residential loans, he added, “but with volumes down, they are now cutting into those margins”.

Structural change

Losses at Sotheby’s auction house more than doubled to US$248m last year amid a broad-based slump in the art market.

Readers of Knight Frank's The Wealth Report 2025 will be aware of the structural change underway in the market, not only in how art is marketed and purchased, but also in terms of changing demand (P.71).

Working with ArtTactic, we assessed the various shifts taking place. Looking just at auction sales from the big three houses, Sotheby’s, Christie’s and Phillips, we noted that global art sales peaked at US$7.8 billion in 2022, after a two-year climb from the Covid low, but by 2024 volumes had slumped by 48% to US$4.1 billion. This lack of activity impacted on values achieved – which reached 70% of their high estimate in 2024, down from 87% in 2021.

Sotheby's and its competitors are suffering from the absence of big spenders. One area of the market is demonstrating real strength, but it's at the affordable end. The number of lots sold under US$50,000 rose from 6,500 in 2019 to over 11,000 in 2024, representing 69% growth. In contrast, over the same period lots sold over US$1 million fell by 28%.

In other news...

Homebuilder Vistry warns of challenges after interim profit drop (Reuters).