General view of building work on the former Earl's Court exhibition centre, London.
The site that once housed the demolished Earls Court Exhibition Centre remains one of the largest development areas in central London

Canary Wharf Group is in early discussions with the listed property company Capital & Counties to buy a large part of its 77-acre housing development site at Earl’s Court, according to two people briefed on the situation.

The downturn in London’s luxury housing market has caused a steep fall in the value of the site that once housed the demolished Earls Court Exhibition Centre, but it remains one of the largest development areas in central London.

Capital & Counties, known as Capco, last year announced it was considering demerging the Earl’s Court site from its other holdings in Covent Garden, prompting interest from a number of prospective bidders.

These have also included CK Asset Holdings, the group run by the Hong Kong tycoon Li Ka-shing, and the housebuilder Berkeley Group, according to people briefed on the talks.

However, no formal offer has been disclosed and Capco has indicated it may push ahead with a demerger. It said in February that preparations to demerge were “well advanced and could be implemented promptly”.

Capco’s shares rose 4.4 per cent to 218.7p on Tuesday after the talks with Canary Wharf Group were first reported by Bloomberg. Capco and Canary Wharf — which is jointly owned by Canada’s Brookfield and the Qatar Investment Authority — declined to comment.

Capco’s share of the Earl’s Court development site, which is mostly held in a joint venture with Transport for London, has lost half of its value in four years on a like-for-like basis, according to analysis by Numis Securities of company filings. The latest valuation shows it is worth £412m.

A 2013 master plan for the area proposes redeveloping 3.4m square feet of land and includes 7,500 new homes. But the plan has fallen foul of political opposition as well as the slump in the high-end housing market.

Capco has sought to push forward a revised scheme for the site, but Labour-controlled Hammersmith & Fulham council and London’s Labour mayor, Sadiq Khan, have been pushing for the return of two council estates to the borough, along with more affordable housing on the site.

Private equity investor Madison International Realty provided a boost for Capco when it said last month it had acquired a 3.12 per cent stake. Madison said it believed the share price “materially undervalues the potential of the company and the underlying properties it holds”.

Capco also owns a separate nearby parcel of land at Lillie Square in a joint venture with Hong Kong’s Kwok family, where some homes are now complete. Its Covent Garden holdings include 78 buildings largely devoted to stores and restaurants.

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