Canary Wharf Expected To Sign More Deals In Wake Of Shell

10th Jun 2010 12:18

By Anita Likus Of DOW JONES NEWSWIRES LONDON (Dow Jones)--Canary Wharf Group PLC's letting of 10 floors at 40 Bank Street to Shell International Ltd. is good news for the real-estate company but more tenancy agreements are expected to be announced this summer. Canary Wharf, the main subsidiary of Songbird Estates PLC (SBD.LN) and the developer of London's second major financial district, will lease to Shell 187,000 square feet of office space at 40 Bank Street for a term of 15 years at a rent of GBP37.50 per square foot. Shell, part of oil giant Royal Dutch Shell PLC (RDSA), also has options to break the lease after 10 years and to request an additional two floors within three months of the date of exchange. The deal "brings diversification to (Canary Wharf's) financial orientated tenant mix and is the third high-profile letting of the group over the last months," said JP Morgan analyst Harm Meijer. Canary Wharf in recent months has announced a lease restructuring for Barclays Capital and let space at its Drapers Garden development to Blackrock Inc. (BLK). The deal with Shell "shows that tenants are considering Canary Wharf as a viable option to the City and West End despite space being available in both," said Evolution Securities analyst Paul Pulze. According to Pulze, the rent is 7% ahead of the GBP35 that had been assumed by the valuer and will increase the portfolio occupancy to 97.5% from 96.2%. The building's vacant space will shrink to 5% from 35%. "As a result we expect the property value to significantly recover from the negative GBP73 million revaluation," said Pulze. Canary Wharf gave Shell 42 months of occupancy rent free. Given that the company will have to pay a penalty of 12 months rent if it breaks the lease after 10 years, the rent-free period is only 2.5 years on the first 10 years. More deals are expected for Canary Wharf in the next few months. It currently is in exclusive talks to form a joint venture with the U.K.'s largest landlord and developer Land Securities Group PLC (LAND.LN) to develop a major city building dubbed "Walkie Talkie" at Fenchurch Street, according to a person familiar with the matter. Another person said that Canary Wharf, together with partners Exemplar Developments and Morgan Stanley Real Estate Funds, is working on the sale of Drapers Garden. This person said that the building is likely to sell for about GBP250 million. The company in January bought 1 Park Place, which benefits from planning permissions for developments of either 214,000 square feet or 950,000 square feet. The company could build quickly. Canary Wharf also has laid foundations for the planned 1.5 million-square-foot London office for JP Morgan, which was presold in 2008. The transactions are positive for Canary Wharf, given the constrained pipeline of newly built developments coming to the market in the City of London from 2011. Property adviser King Sturge forecasts some eight million square feet of lease expiries or breaks from 2012 onward, so occupiers will have to start considering their property strategies now to secure space before it comes to market through pre-lets. -By Anita Likus, Dow Jones Newswires; +44 20 7842 9407; [email protected] (END) Dow Jones Newswires June 10, 2010 07:18 ET (11:18 GMT)