After five years of pain, Canary Wharf is fast transforming into London’s hottest submarket.

In February 2013 there was around 2.4m sq ft of available and grey space in Canary Wharf, according to figures from GVA.

By February this year there was just 1m sq ft officially available, with another 500,000 sq ft of grey space.

And GVA reckons there is more than 750,000 sq ft of demand in E14.

“Banks are starting to withdraw space or quietly expand,” says director Jeremy Prosser. “And Canary Wharf has become the last remaining value point in central London. We anticipate that rents and incentives will contract significantly over the first half of this year.”

So what has caused this sudden revolution?

While Canary Wharf Group has managed to keep headline rents at respectable levels – around £45 per sq ft – many of the estate’s major occupiers have been willing to cut sublet deals at substantially less than that.

Allen & Overy has let all but around 12,000 sq ft of its excess space at 40 Bank Street to tenants that include Carlson Wagonlit Travel, CCT Venues, i2 offices and Prolegal at rents of between £30 and £40 per sq ft.

And those that are not subletting are slowly taking back grey space and even expanding.

Barclays has removed a large swathe of grey space from the market in its 5 North Colonnade headquarters as it begins growing again. It is even rumoured to have a requirement of around 50,000 sq ft.

HSBC has also decided to expand, taking 27,120 sq ft on the ninth floor of One Canada Square in December.

A further 57,016 sq ft on the 32nd and 33rd floors of the building is under offer.

And Citi Group and Clifford Chance have also sublet and withdrawn space at 25 Canada Square and 10 Upper Bank Street, respectively.

The sudden erosion of space coincides with a revival in headline deals.

Professional services giant EY agreed heads of terms for a 200,000 sq ft move to 25 Churchill Place in November, following rival KPMG’s August announcement that it would take 200,000 sq ft in 30 North Colonnade. The Financial Conduct Authority has shortlisted options in Canary Wharf and Stratford for 400,000 sq ft, while TfL is assessing Canary Wharf against a sublet of RBS’s 2+3 Bankside, SE1, for 150,000 sq ft.

SocGen will soon appoint an agent to help it source up to 300,000 sq ft, with Docklands options high on the list.

Thomson Reuters’ long-held requirement for a massive new headquarters was put on hold recently but there is still a good chance of smaller leasing deals or re-gears if the big move fails to emerge.

Pull factors

Andrew O’Donnell, EY real estate leader for UK and Ireland, cited Canary Wharf’s cost and improved transport as significant pull factors.

“Both the Jubilee Line upgrades and the impact of Crossrail will unlock a location previously seen as very much on the fringe,” he said.

“This, combined with the expanding business presence of like-minded occupiers and the area’s growing retail and leisure offering, has helped Canary Wharf become a more attractive option for occupiers previously concerned by higher vacancy rates,” he added.

Add to that the push factor of rising rents elsewhere in London and the case becomes more compelling.

Soaring West End rents have pushed tenants into Midtown and the City, triggering rental growth, while the South Bank has seen its best year for leasing with deals including News UK’s giant prelet of The Place, SE1.

Seemingly, then, the only note of caution to sound will be how quickly that discount to City rents disappears.

Canary Wharf’s dominant occupier group, the investment banks will have a big part to play in that.

Monday 13 January saw $100bn of merger and acquisition deals tabled in a single day, including Suntory’s $16bn (£9.8bn) takeover of Beam; Charter’s $61bn offer for Time Warner Cable; and Google’s $3.1bn deal to buy Nest.

Seasoned commentators played down “Merger Monday” headlines, but the bumper fees generated from such mega-deals will help to focus minds on expansion plans.

All of which has led Deloitte senior partner Julian Stocks to conclude that “increasing activity means 2014 could be a great year for Canary Wharf”.