JPMorgan, the American bank, will be the latest global financial institution to abandon the City for Canary Wharf.

Hammerson, the British commercial property group, said yesterday that JPMorgan had pulled out of talks to take a planned 90,000 sq m building on the St Alphage House site in the City. It has had to write down £17 million in costs as a result of JPMorgan pulling out. The reason given by the bank for not taking up the site was a lack of space.

JPMorgan, which recently bought Bear Stearns, its failing rival, will set up its new European headquarters near Bear Stearns’s former offices in Canary Wharf, three miles to the east. It plans to move its existing London offices, as well as employees brought in from Bear Stearns, into a new building at Canary Riverside South. The partly built Bear Stearns building in Canary Wharf will also be occupied as previously planned by the newly enlarged group.

Canary Wharf appeals to international banks because rents are below City levels. It also has more space than Central London and skyscrapers can be built there more easily than in the historic and crowded City.

The global investment banks Goldman Sachs, Deutsche Bank, UBS and Merrill Lynch are committed to large offices in the Square Mile.

One London lettings agent said: “What it shows is that the City of London is not big enough to accommodate the mega-banks any more.”

This is the latest piece of bad news for the City office market, where average values have fallen by almost 20 per cent since the peak of the British property boom in June 2007.

Times Recommends

• Minister in talks with Saudis to protect creditors
• Premier Inn hits back in £29-a-room row
• Bankers hit back at 'populist' bonus supertax