Canary Wharf, the Docklands developer, may have to take a writedown of several hundred million pounds to reflect the declining value of its skyscraper office estate over the coming months as it feels the squeeze from the redundancies affecting its banking tenants.

The likely markdown on the office values of Canary Wharf emerged from a trading outlook from the chief executive of British Land, Britain's second-largest commercial property company and one of the Docklands developer's largest investors.

British Land wrote down the value of its shops and offices yesterday by £1.9 billion as it slumped to a £1.6 billion loss, but Stephen Hester, the chief executive, gave warning of a further reduction in property values for the year ahead as occupier demand for new offices and shops wanes.

The decline in its holdings - £1.59 billion from its directly owned property and £354 million in its share of joint ventures - drove the group into a pre-tax loss of £1.6 billion, compared with profits of £1.2 billion a year ago.

British Land's 10.8 per cent holding in Canary Wharf was hit hardest, marked down “for accounting purposes” by 27.5 per cent to £185 million over its financial year to March 31.

Much of those writedowns occurred in the winter of 2006 and the autumn of last year.

In March, Canary Wharf reported that its buildings were worth £7.27 billion at December 31, a reduction of 4.3 per cent from the value given six months earlier, despite the addition of new buildings to its estate.

Mr Hester said: “It [Canary Wharf] is a great development, but, like all the portfolio, not immune.”

British Land's heavy exposure to the City offices market - it owns the Broadgate Estate - resulted in its value declines being far more severe than those suffered last week by Land Securities, Britain's largest commercial property company, which fell to an £888 million loss after £1.28 billion of writedowns.

The decline in British Land's property values slowed in its final quarter to March 31, down 2.2 per cent, prompting Mr Hester to say: “The worst is probably behind us.”

However, he added: “Markets have been known to overshoot in both directions, and we do expect a further decline in the current year.”

Since the new year, City job losses and a slump in consumer demand have hit rental demand, which in turn is likely to weigh further on the values of shops and offices this year.

Mr Hester said: “There will be a further decline, and I am not sure how much or for how long.

"Clearly, there will be a rental slowdown, and in some places rents are going backwards, but that is all in an economic cycle - there is not some moving of tectonic plates.”

JPMorgan has forecast that up to 40,000 City jobs could go over the coming year. That could include hundreds of redundancies at Bear Stearns, which had struck a deal with Canary Wharf to build a London headquarters at 5 Churchill Place before the group was bought by JPMorgan.

Construction is scheduled to proceed, but JPMorgan may have to sub-let excess space back on to the market, property sources told The Times.

The British Land estate, which includes the Meadowhall shopping centre in Sheffield, is 99 per cent let.

How the vision took shape

1987 Olympia & York, the Canadian property company run by Paul Reichmann, buys the derelict Docklands site after the vision by Michael Klemm, chairman of Roux Restaurants and Credit Suisse, that Canary Wharf could be a business centre for London

1990 Construction work begins

1991 First tenants move in

1992 Olympia & York collapses and Canary Wharf is taken over by creditor banks

1995 Mr Reichmann and investor partners buy back Canary Wharf

1999 Canary Wharf lists on the LSE

2004 Canary Wharf is bought for £1.7 billion by a consortium led by Simon Glick, a New York diamond and property magnate, Morgan Stanley funds, Goldman Sachs's Whitehall Funds, the Government of Qatar, Prince al-Waleed bin Talal and British Land. A rump equity stake in Canary Wharf dubbed Songbird Estates lists on AIM

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