London: The City That Isn't Sleeping
It's a comeback that few had thought possible. In 1992, the Irish Republican Army set off a huge bomb in the City of London, killing three people, damaging several buildings, and rocking confidence in the British capital's mile-square financial center. Yet today, some see opportunity in the devastated site. On Sept. 10, property and leisure conglomerate Trafalgar House Property Ltd. unveiled plans to erect Europe's tallest building right in the City.
The92-story, glass-sheathed Millennium Tower could encounter stiff opposition. English Heritage, the agency charged with protecting historic sites, has reservations about its 386-meter height and the demolition of the remnants of a historic building. But if the tower is built as planned, it will surpass the new Commerzbank headquarters, now under construction in Frankfurt, by 85 meters. That would send a signal, its developers say, to Frankfurt--London's principal competitor in European finance, that the City is still No.1.
"MONSTER" BUILDINGS. The grandiose project also shows that London's property market is finally recovering after a five-year slump. Driving the turnaround are financial institutions that believe London will remain Europe's financial hub well into the next century. Rents for prime commercial space have risen roughly 30% from the 1993 trough, although they're still well below their peaks of the 1980s. Construction will even recommence soon at Canary Wharf, the long-troubled East End development designed as a rival to the City. "For the first time since I have been at Canary Wharf, the market outlook is strengthening," says Charles B. Young, deputy chairman of Canary Wharf Ltd.
Much of the demand for space is coming from non-British institutions. Some, such as Deutsche Bank and the Netherlands' ABN AMRO, have been shifting trading functions from their home cities to London, which is cheaper and less regulated. Others, such as Citibank, want to consolidate scattered operations in one premium building with room for the 3,700-square-meter trading floors today's financial heavyweights need.
In the City of London, which is long on charm but short on space, such megafacilities aren't readily available. Rents for scarce premium space are rising, and pressure for "monster" buildings is increasing. Commercial vacancy rates have fallen below 10%, the point where experts say price pressure begins to kick in. Yet so far, rents are rising only gradually, so developers aren't worried about a repeat of the speculative boom that caused massive overbuilding in the late 1980s and led to a collapse in the early 1990s. Although speculative building is increasing as construction bounces back from a virtual halt, relatively little new space is expected to come onto the market over the next couple of years. "The boot is finally moving more onto the landlord's foot," says Mark Slim, partner at BH (superscript) 2, a central London real estate adviser.
RISING COMPETITION. That is sweet news for Young, whose career at Canary Wharf has been a roller-coaster ride. A former London chief for Citibank, he helped persuade Canadian impresario Paul Reichmann to build the project and joined him as an executive director in 1987. He lost his job in 1992 after Canary Wharf went into administration as the London property market tanked.
Now, Reichmann is back in control, and Young is overseeing rental of the remaining 20% of the Wharf's original 418,100 square meters not yet spoken for. He is also enthusiastic about Phase II--the 743,000 additional square meters Canary Wharf hopes to build over the next 10 to 15 years.
Young scored a major coup recently when he helped persuade Citibank to move most of its British operations into a new 51,100-square-meter building at Canary Wharf--the first new construction of Phase II. It is not clear how sweet a deal Young and Reichmann had to offer Citi, whose vote of confidence they hope will help reel in other big banks. Citi will own the building--an arrangement Canary Wharf normally doesn't care for. But Young says he is in serious discussions on Phase II with two other big financial institutions.
With important tenants such as HSBC Holdings PLC, Merrill Lynch, and Liffe, London's futures and options exchange, said to be prowling for space, competition between the City and the Wharf could be heating up again. Canary Wharf has some big advantages. Its rents are around $376 per square meter annually, compared with about $700 for premium City space. Tenants can have virtually anything they want built at Canary Wharf's wide open spaces, while large building sites in the City are rare. And when the extension of the Jubilee underground line in 1998 cuts travel time from central London in half, to 15 or 20 minutes, the City's location will be less significant.
Already, Morgan Stanley Group (Europe) PLC has its headquarters at Canary Wharf, and BZW Ltd. is moving its global headquarters there. The Corporation of London, which is largely responsible for governing the City, is keenly aware that it risks losing tenants to Canary Wharf and locations outside Britain if it fails to accommodate their needs. So it has dramatically eased zoning restrictions and lured such major institutions as ABN AMRO and Deutsche Morgan Grenfell to build on City turf. The City has also put together a "hit team" of surveyors to help developers solve problems.
Sir Norman R. Foster, architect of the tower, and Trafalgar are hoping that London's desire to remain competitive will help them win approval, despite the criticism it is bound to attract. "If the market needs aren't met," says Trafalgar Managing Director Alan Winter, "people will go somewhere else." It's looking likely that London will go a long way toward satisfying those needs.