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Canary Wharf lures new bank tenant in much-needed win over London's City

European Bank for Reconstruction and Development opts to lease space at under-construction tower in district

London

BATTLING Brexit and a decade-long retreat of banks, Canary Wharf Group plc is on the cusp of a much-needed win over its long-time nemesis, the City of London.

The East London financial district will soon snatch the European Bank for Reconstruction and Development (EBRD) from its rival after the financial institution opted to lease space at the under-construction 5 Bank Street tower, people with knowledge of the plan said, asking not to be identified because the talks are private.

Spokesmen for EBRD and Canary Wharf declined to comment.

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The deal would be a break from a recent losing streak that has seen lenders including Deutsche Bank AG, Wells Fargo & Co and Jefferies Financial Group Inc opt for new space in the City of London. The dearth of bank leases has suppressed rents in Canary Wharf, which now carry a much-greater discount to the City than they did before the financial crisis.

While the EBRD, currently based in the Broadgate complex near Liverpool Street station, is still securing internal approvals for the move to Bank Street, Canary Wharf has ceased marketing the space to other renters, the people said.

The EBRD lease, which would be the biggest agreed in the district in two years in terms of space, would be a coup for the Qatar Investment Authority and Brookfield Property Partners LP, which bought Canary Wharf Group for about £2.6 billion (S$4.5 billion) in 2015.

If the deal goes ahead, the EBRD will join Societe Generale SA in the building, which is due to be completed next year. The French lender was the last bank to sign a major lease for a new office in Canary Wharf when it agreed to rent the space in 2014.

Originally founded in 1991 to promote development in Eastern Europe after the end of the Cold War, the EBRD is a multilateral investment bank owned by 69 countries and two European Union institutions.

Resilient demand for office space has kept rents and prices near record highs in the City of London while the threat of a disorderly Brexit has weighed more heavily on Canary Wharf due to its higher proportion of international bank tenants that could be forced to move staff.

At the same time, banks including Citigroup Inc, Barclays plc and Credit Suisse Group AG have been reducing space in Canary Wharf and offering some of it to sublet, undercutting prices for new offices.

Canary Wharf lost out in an attempt to woo Deutsche Bank away from the City with premises that were cheaper and purpose-built. The rent at the bank's planned new base at 21 Moorfields in the City will be at least £145 million higher over the course of the lease, and substantially more once taxes and incentives are included, according to calculations by Bloomberg News.

The sums are based on filings by developer Land Securities Group plc, which is building Deutsche Bank's new City of London office, and people with knowledge of the Canary Wharf proposal who asked not to be identified as the terms were confidential. The German lender already leases a smaller space in Canary Wharf that it will continue to use once the new City office is built.

Intense competition has prompted Canary Wharf to accelerate its pivot toward providing offices aimed at technology companies and developing homes. In October, the company launched Wood Wharf, a 23-acre site next to the existing estate that it aims to turn into the largest cluster of tech and creative businesses in Europe.

The five million square-foot project, about 10 times the space in the Gherkin skyscraper, has already attracted tenants including Ennismore International Management Ltd, owner of the Hoxton Hotel in Shoreditch, and Blackstone Group LP's flexible office platform The Office Group.

About 40 per cent of the space will be used for offices and the plans also include about 3,300 new homes and 490,000 square feet of stores, restaurants and community facilities.

The company expects the work to be completed in 2023. BLOOMBERG