London Real Estate Projects on the Rocks Property Developers Worldwide - from Toronto to Tokyo to New York - Have Seen Values Fall and Vacancies Rise
Alexander MacLeod, Monitor, The Christian Science Monitor
LONDON'S huge Docklands development - a symbol of 1980s economic expansion - has been thrown into jeopardy by the cash crisis affecting the Toronto-based real estate company Olympia & York.
The new Canary Wharf office complex on its 70-acre site includes Europe's tallest building, the focal point of an attempt to create a new financial district in London's East End. That goal would be threatened, however, should Olympia & York's huge debt force cancellation of a $2.25 billion subway extension linking it to central London three miles away. Without the link, which Olympia & York was to have partly paid for, Canary Wharf would be isolated from the rest of the capital.
Even before the Reichmann brothers of Canada, Olympia & York's directors, admitted in March to debt between $10 billion and $20 billion, Canary Wharf and other parts of the sprawling Docklands project were in trouble.
Only a little more than half the 50 floors in the newly built 800-foot tower have been leased. Despite a reduction by one-half of rents from the $100 to $110 per square foot asking price when space first became available two years ago, tenants have been hard to find. Rents closer to the center of London have been falling rapidly. Estate agents say that about 40 million square feet of office space is vacant in the center of London. Empty office buildings
According to property consultants Jones Lang Wootton, nearly 20 percent of office space in London's old financial district is also vacant.
One estate agent said that prospective Canary Wharf tenants were being offered rent-free accommodation for the first three or four years. The threat to the subway link, the agent says, has "made an already bad situation terrible."
Olympia & York was to have paid $700 million to help finance the rail link. Last week a government-imposed deadline for Olympia & York to come up with a cash deposit passed without a payment.
The problems besetting the Toronto developer are far from unique in the London property market. Speyhawk, builder of a huge development within sight of St Paul's Cathedral, is currently trying to reschedule $510 million in debt. Meanwhile some 200,000 square feet of its Cannon Bridge office project is standing vacant, according to London property agents. …