Canary Wharf Group (CWG) surprised the markets this morning when it announced that the European Medicines Agency (EMA) has agreed to pre-let 250,000 sq ft, or approximately half of the total space in 25 Churchill Place, the final piece in the original Canary Wharf jigsaw puzzle. The 20-storey building, which will stand directly opposite Barclays global headquarters has already been constructed to basement level, however after the American insurance and reinsurance giant, Aon walked away from a deal, the site has laid dormant for several years with three schemes of varying height since worked up.
In a telling sign of the underlying confidence that is driving the London commercial property market, CWG – well known for their conservative approach to construction on the Docklands estate – has opted to develop what they term the 'high rise' option at 25 Churchill Place, which consists of a Kohn Pedersen Fox (KPF) designed tower of 20-storeys, which will offer approximately 550,000 sq ft of Grade A lettable space. EMA has agreed to take the promenade, ground and the first nine office floors with the option on a further four levels, each of around 27,400 sq ft.
In keeping with several recent deals by CWG, EMA – responsible for the evaluation of medicines developed for markets in the European Union – is already located in the Wharf, currently occupying space at 7 Westferry Circus, which they will vacate once construction, which will be carried out by Canary Wharf Contractors (CWC) is completed. The EMA will pay just £46.50 per sq ft on a 25-year lease, which commences from 1 January 2015 without break, which translates into minimum revenue of £290m over the term, which also includes upwards-only rent reviews every five years.
The deal, which also includes a 37 month rent free period that will effectively be used to fund the internal fit-out of the building, highlights the long-standing financial benefits to firms of being based in Docklands as opposed to the City, where comparable rents are £55 psf – a premium of around 15% or an impressive £43m over the 25-year lease that EMA has signed for.
For CWG, this latest letting also represents another major step forward as it looks to modify the tenant mix on the estate from one of high finance to high-value firms in the oil and pharmaceutical industries. The recent letting of 187,000 sq ft of space at 40 Bank Street to Shell can be seen as another key indicator of this new strategy, which in theory reduces the risk of another Lehman-sized void left on the estate given the continued economic challenges that the banks face.
Tower-cranes will return to site in the final quarter of this year, with CWG also confirming that it is now in active discussion with several commercial lenders as it seeks to fund the construction phase. The group will look to let the remaining floors as the building takes shape and will be keen to ensure a 100% occupancy rate given that several buildings on the estate, including both 5 Churchill Place and 30 North Colonnade remain only part-let with a combined availability of over 400,000 sq ft. This element is hugely important to CWG, whether they directly own the asset or not as they look to maintain rent levels across the estate by ensuring the supply of space does not outstrip demand.