Fitch predicts Canary Wharf vacancy rise despite Morgan Stanley deal
Rating agency Fitch has said Morgan Stanley’s decision to stay put at Canary Wharf has “alleviated some downside risk” for landlord Canary Wharf Group, but that vacancies are still expected to grow.
CWG’s lease extension at 20 Bank Street, E14, “reduces the risk of void and non-committed capital upgrade costs coinciding across multiple buildings”, the agency said in its latest analysis of Canary Wharf Finance II, a securitisation of a commercial mortgage loan backed by five office buildings in the financial district.
Analysts at Fitch Ratings said it will boost the borrower’s ability to refinance ahead of repayments due on class A1 and B notes, totalling £87.8m, in April 2030. Before the lease extension, 72% of the portfolio’s income was subject to expiry or break options within the next five years.
Rating agency Fitch has said Morgan Stanley’s decision to stay put at Canary Wharf has “alleviated some downside risk” for landlord Canary Wharf Group, but that vacancies are still expected to grow.
CWG’s lease extension at 20 Bank Street, E14, “reduces the risk of void and non-committed capital upgrade costs coinciding across multiple buildings”, the agency said in its latest analysis of Canary Wharf Finance II, a securitisation of a commercial mortgage loan backed by five office buildings in the financial district.
Analysts at Fitch Ratings said it will boost the borrower’s ability to refinance ahead of repayments due on class A1 and B notes, totalling £87.8m, in April 2030. Before the lease extension, 72% of the portfolio’s income was subject to expiry or break options within the next five years.
The agency said the bank’s lease renewal has “alleviated some downside risk”, especially as other single-let properties in the portfolio “require modernisation in the medium term”.
However, analysts pointed to challenges that “remain from wider market conditions”.
Vacancy rates in Canary Wharf generally have climbed to around 15%, according to Fitch’s note, while yields increased by 150bps over 2023.
“Given that other large occupiers have announced their exits from the estate, we anticipate vacancy will continue to grow over the medium term, which will likely constrain rental growth,” said analysts at Fitch. “These risks are finely balanced, consistent with the ratings’ stable outlooks.”
As part of the deal, Morgan Stanley will stay in the offices until 2038. The bank will undertake a major refurbishment, with CWG contributing £150m towards the works.
Fitch said the property should be refitted to a “best-in-class” standard to further “avoid re-letting uncertainty and the attendant risk of a prolonged void”.
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