If there was any trophy asset in the UK that would fit naturally into the Qatari investment portfolio, then it is surely Canary Wharf. With its gleaming office towers, filled with smartly suited bankers and consultants, and lined with sushi bars, it has always seemed more like a Gulf statelet than a London district.
Apart from the fact that the Thames is a lot greyer than the Persian Gulf, and it rains a lot more, you could almost be in Qatar itself. It really is hard to think of a more perfect match.
It remains to be seen whether the takeover bid for Songbird – the company that owns much of Canary Wharf – by the Qatar Investment Authority, is successful or not. Songbird is still holding out for more money. If it does, however, it will mark the closing of a chapter for the City of London.
Canary Wharf was not just another set of office buildings. It represented a different kind of City, one that was based on trading and globalisation. But it is also possible that the owners will be getting out at precisely the right time.
While Canary Wharf was perfect for the way the City changed over the last 25 years, it may not be right for the next quarter century.
How the Wharf reinvented the City
When development of the site started in the late Eighties, that section of London was derelict docklands. No one had done anything with it for more than a century. The City stopped at the Tower of London, and beyond that were the slums of the East End.
Turning it into a gleaming financial hub has re-drawn the map of London, creating an alternative and in many ways more vibrant financial centre to the east.
Back then, the Wharf had two big trends on its side. The first was the creation of vast trading floors, complete with Bloomberg terminals and lots of young dealers in their shirt sleeves.
The second was the invasion of the big American and European investment banks, following the Big Bang liberalisation of the markets, which was to turn the old-style City into a global financial hub. As it turned out, Canary Wharf was perfect for both.
Its big new office blocks could easily house the trading floors. And the abundance of upmarket office space was much more what the big American banks were used to back home.The tower blocks, and the neat grids of streets, made them feel at home.
Canary Wharf was far better suited to the financial markets that came to dominate London in the Nineties and onwards than the twisty, old-fashioned lanes and alleyways of the traditional Square Mile.
The end of an era
Fast-forward to 2014, however, and that phase may well be passing. There are two main reasons for that.
Firstly, proprietary trading is declining in importance. For all the soul-searching about the causes of the financial crash, the simplest explanation is that the banks dedicated too much of their own capital to trading on their own account. It was great while the markets were going up. When they turned down, it was catastrophic.
The collapses were mainly caused by banks getting stuck with a lot of worthless paper on their own books for which there were suddenly no buyers. In the years since then, the global investment banks have retreated from that business.
Some of them have wound it down voluntarily, because they have realised it was mostly a zero-sum game, in which the profits you made one year were likely to be cancelled out by losses a few years later.
Others have been forced into retreat by the regulators, who have quite rightly noticed that the traderswere going to collect any winnings while leaving any losses to the taxpayer to deal with. Either way, banks are trading for themselves far less than they used to – and so they don’t need the same acres of open-plan office space.
The second is that the growth over the next 20 years will be coming from different types of companies. Even stripped of much of their proprietary trading, the mega investment banks are hardly thriving. UBS is focusing on its wealth-management business rather than investment banking.
Royal Bank of Scotland is not trying to play in the big league anymore. Instead, the growth is among the hedge funds, the venture-capital firms, and the financial tech start-ups that are finding imaginative ways of using the internet.
Those kinds of companies don’t need a couple of acres of office space in Canary Wharf. They are more likely to find themselves small offices in Mayfair or Shoreditch, not in the massive towers of the Wharf.
The City is on the move again
Geography has always been a good guide to the fortunes of the City. The push eastwards into docklands was perfect for the Nineties and 2000s as London became a financial hub to compete with New York.
The next two decades will probably see it expanding north and west as different kinds of businesses make the running. And that implies that this is probably the best possible moment to sell.
The Wharf is not about to turn back into a derelict wasteland, but the peak of the market for that kind of development looks to have passed. Of course, selling out at the top of a market is precisely what Canary Wharf exists to do – so it would only be fitting if it did so itself.