The Qatar Investment Authority’s stake in Credit Suisse Group AG isn’t the sovereign wealth fund’s only source of pain following UBS Group AG’s cut-price acquisition. It is also the bank’s major landlord in London.
QIA directly owns 1 Cabot Square where Credit Suisse has a lease until 2034, as well as owning half of Canary Wharf Group, the landlord that owns and manages much of the rest of the east London financial district. While UBS will assume liability for that lease after buying its rival, the demise of Credit Suisse is another blow to the sovereign wealth fund and what were once the crown jewels of its real estate portfolio.
Representatives for QIA and Canary Wharf declined to comment.
QIA has previously sought to sell 1 Cabot Square, which it acquired for about £330 million ($402 million) pounds in 2012. It agreed initial terms to sell it to Korea’s KB Securities for £460 million in 2018, but that deal never completed.
UBS has outlined swinging cost cuts for Credit Suisse which are likely to result in severe job losses at its investment bank, much of which is based in 1 Cabot Square. Still, UBS has recently subleased some vacant space in its own London headquarters at 5 Broadgate, limiting its ability to absorb those that retain their jobs within its own office estate.
The sovereign wealth fund also owns HSBC Holdings Plc’s headquarters, a location the bank is considering a move away from. Another major Canary Wharf tenant Clifford Chance has already signed a deal for a new office in the City. Its building is majority owned by China Life Insurance Company Limited, though Qatar Holding LLC has a 20% stake and the Canary Wharf Group a further 10%.
The Canary Wharf office market has been buffeted by twin headwinds of Brexit and the global pandemic. The banks who remain its largest tenants have been creating new jobs elsewhere in Europe and, in some cases, shifting roles to the continent. The pandemic forced companies to experiment with home working and while finance workers have been quicker to return to the office, in some cases, financial firms have reduced the amount of space they require.
Canary Wharf’s vacancy rate is already about 15% and the emptying of 1 Cabot Square could add about 2% of unoccupied space to the market, Green Street estimates.
“The CS news is the latest incremental drag to Canary Wharf’s weak office fundamentals,” Marie Dormeuil, Green Street analyst, said.
Companies have also started to think more about the type of space they need to lure workers back. In some cases that’s meant shifting to premises in more central areas, perceived as having more amenities on offer.
Canary Wharf Group has been fighting hard to counter that image, introducing a raft of amenities from Fairgame, a venue offering fairground games, food and cocktails, to open water swimming in one of its docks. Its built apartments and is trying to lure life sciences companies to diversify its income and create a place to “live, work and play”, in an attempt to do away with the outdated perception that it is a bankers haven that’s dead on weekends.
Most of its buildings have long leases, buying time to reinvent the district and its being aided by the belated arrival of the Elizabeth line, a cross town rail link that’s provided rapid connections between Canary Wharf, central London and Heathrow, the UK’s biggest airport.
--With assistance from Stefania Bianchi.
©2023 Bloomberg L.P.