Earlier this month, HSBC announced its intention to move its global headquarters out of Canary Wharf. The decision rapidly sparked concerns. Is this the sign of an inexorable decline for the financial district, as some commentators predict? Here are three key takeaways on what this announcement really implies.
Is Canary Wharf’s loss the City of London’s win?
The announcement is undoubtedly a blow for Canary Wharf, not least because it’s losing one of its major occupiers of the past 40 years – now counting 8,000 staff in a 45-floor tower. HSBC’s intention is to cut costs and downsize to much smaller offices, which is a concrete illustration of the impact of hybrid working on demand for office space.
The most revealing part of the story is not where the bank is moving from, but where it is moving to: back into the City of London. And this says as much about Central London as it does about Canary Wharf. This may come as a revelation for those who predicted Central London was going to struggle in the aftermath of the pandemic.
HSBC could have decided to cut costs by moving to a business park on the outskirts of London. But they didn’t. Instead, the bank justified the move to be “well-connected to major transport links and amenities” and “a more convenient location for employees”. This highlights the various benefits that city centres offer to businesses, particularly those in the knowledge services sector, even in a post-pandemic world.
Claims that Canary Wharf has lost its appeal should be taken with caution
Canary Wharf emerged in the 1980s and 1990s largely because planning restrictions and physical space constraints in the City of London prevented the Square Mile from accommodating the rapid expansion of the financial services sector. Many of those constraints have relaxed since then, as the rapid expansion of skyscrapers across Central London’s skyline from the 2000s onwards shows. This has meant that Canary Wharf is starting to face steeper competition.
But some of the constraints on future developments in Central London still exist. Protected sightlines and height restrictions are among them. The case-by-case nature of the planning system, which allows only costly ‘trophy architects’ developments a chance of getting planning permission is another one. HSBC may have benefitted from a first-mover advantage, but restrained supply would likely make it difficult for others to follow.
And while it’s right to be concerned about rising office vacancy rates, HSBC’s move is (for now at least) at odds with many other high profile occupiers in Canary Wharf – like JP Morgan – who have been more vocal about getting people back to the office and are therefore less likely to downsize.
So, what are the lessons to draw?
While the impact for Canary Wharf is more likely to be on the margins, rather than radical, it still faces a challenge to regain its appeal. The strategy so far seems to be to pivot away from over-reliance on financial services by developing a new life science cluster. It’s also trying to become a retail and nightlife destination, and the opening of the Elizabeth Line seems to have helped boost footfall in the area. The problem, though, is that retailers still largely depend on daily inflows of commuters, not weekend shoppers.
The fact that HSBC announced it is moving to more sustainable offices also shows the direction of travel, with more and more companies keen to cut energy costs and show green credentials. This could be a challenge for Canary Wharf, whose property stock is less energy-efficient than many buildings in the City of London, particularly its relatively new skyscrapers.
The move could cause a long-term headache for HSBC, too. By deciding to move to Central London, the bank acknowledges the economic benefits of face to face interactions, while paradoxically preventing all staff from coming in at the same time and betting that current ‘hybrid’ working patterns are here to stay. If this proves wrong, and if office presence proves to be a competitive advantage in the banking sector, then this may leave HSBC in a difficult position.