London's historic financial center is losing a marquee bank -- to real-estate rival Canary Wharf. After efforts to build a new headquarters in the City, as the square-mile area is known, ran into problems, J.P. Morgan Chase said Friday it would instead move to Canary Wharf, the rival financial district developed over the past two decades.

Getty Images J.P. Morgan Chase wants to move from its offices in the City.

There has been a strong rivalry between the two areas ever since the development in London's old docklands started winning away large banks, such as Citigroup, HSBC Holdings, Barclays and Lehman Brothers Holdings. As a result, City officials were eager to ensure that J.P. Morgan didn't go.

When J.P. Morgan began looking to consolidate employees scattered across several buildings into a new headquarters, local government officials offered a long lease on the land and agreed to give J.P. Morgan ownership of the building if the bank helped to redevelop the site.

But circumstances have changed. J.P. Morgan needs more space following the acquisition of Bear Stearns this year. Also, owning real estate is no longer so attractive. London real-estate values have tumbled, and a construction boom promises that more space will hit the market.

J.P. Morgan also ran into problems with its plans for St. Alphage, a post-World War II building the City is eager to redevelop. Strict planning constraints limit buildings blocking views of St. Paul's Cathedral. Residents of the neighboring Barbican development, a residential area and public art space, objected to the bank's plans to James Dimon, J.P. Morgan's chief executive.

J.P. Morgan has a deal with Songbird Estates -- the Morgan Stanley-led consortium that owns the Canary Wharf Group -- to move to a single office tower with more than one million square feet (93,000 square meters) at Canary Riverside South in early 2013.

"Without a doubt, we are disappointed, as they are a big tenant," said Peter Bennett, city surveyor of the City of London Corp., as the local government is called. The City owns some of the land in the district.

The City still has some major banking tenants: Merrill Lynch, Goldman Sachs Group, Deutsche Bank, and UBS. And J.P. Morgan's packing plans may not be a done deal. The City could still persuade the bank to change its mind.

Write to Vladimir Guevarra at vladimir.guevarra@dowjones.com

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