But last week Canary Wharf finally began to look like the smart move its backers had always insisted it would be. When a 25 percent stake in the development went on the market, big institutional investors bid a total of £551 million for it, valuing the entire company at £2.2 billion. Analysts have at last concluded that London needs the 13.5 million square feet of elbow room that Canary Wharf can offer. Tourists flock in to gawk at the lavish scale and fittings; 99 percent of the finished space is let. For the team of true believers–including Reichmann–who bought the development back from the bankers in 1995 for just £800 million, that’s sweet vindication. Says Canary Wharf CEO and project veteran George Iacobescu: “The long road from night into day is almost over … From A to B you never go in a straight line.”
The queue of incoming tenants helps explain the investor enthusiasm. Work began last month on a 41-story office tower to house 8,000 staff from HSBC, Britain’s largest bank. Next week sees the start of a similar megalith, already largely let to Citigroup. And plenty more look set to follow as the original ’80s master plan at last begins to take glass-and-concrete form. The latest spasm of interest means two thirds of the 85-acre riverside site is already finished or under construction. Agents reckon the entire complex will be completed within seven years. By then today’s 25,000-strong work force will have risen to 90,000.
That should bring a little more of the Big City throb that Canary Wharf has al- ways lacked. Tenants already note a change. “It’s becoming a lot more vibrant as the space fills up,” says Bruce Buck, a partner in the U.S. law firm Skadden, Arps, Slate, Meagher and Flom, which moved in two years ago. Crucially, an underground link to central London is also due to arrive this summer. Forty percent of the apartments in a snazzy riverside block have sold since hitting the market three months ago–despite prices that start at £220,000 for a one-bedroom flat. Want a penthouse? You’ll need at least £2.6 million.
The prices are perhaps fitting, considering the complex’s roaring ’80s roots. In 1982 the Tory government designated a rundown swathe of East London an “enterprise zone” to entice the private sector into the regeneration game. On offer were generous tax breaks and freedom from meddlesome planning constraints. Among those who took the bait were Reichmann and his brothers, whose Olympia & York property company was already responsible for New York’s World Financial Center.
Early visitors to their creation were impressed chiefly by its ambition. By day the vast development was half empty; by night it was deserted. That was partly because it was inaccessible: the buildings went up years before the transport links were forged. The only road into central London was choked at peak times. The only rail connection was the new but unreliable Docklands Light Railway. By the early ’90s a speculative office-building boom dumped a glut of property on the market just when the economy hit the skids. At Canary Wharf the bankers took charge in an attempt to salvage their investment.
Paradoxically, the same downturn that sank Reichmann is now helping restore his fortune. Lenders are still nursing burned fingers after the property cycle’s last downswing and are wary of speculative megaprojects–so the property supply is limited. At the same time the financial sector has shrugged off worries over London’s future as financial capital of a currency zone that excludes Britain.
True, there’s a thicket of cranes over the City these days. The authorities there are working hard to smooth the path for developers. But history and planning regulations work against them. The ancient street pattern means many buildings come in tricky irregular shapes. And concern for the skyline more or less prohibits the big, new tech-friendly skyscrapers the moneymen favor.
To be sure, geography still counts against Canary Wharf. Heathrow is a 90-minute taxi ride to the east; the major rail stations are all in the city center. Analysts have other niggles. At the moment rents are still some 25 percent lower in Canary Wharf than in the City but prices are converging fast. Will there still be a flow of willing tenants at higher rates?
Success comes at a price–and it’s not only the developers who’ve been paying. The project has swallowed vast sums in tax breaks and public money–and so far there’s little evidence of trickle-down prosperity in the surrounding area, where unemployment runs at 13.6 percent. But in the development business it’s best to take the long view. Ask Paul Reichmann.
