LONDON: London's Canary Wharf financial district wants to convert swathes of empty office space into other uses including hotels, two executives at the landlord told Reuters, as it responds to faltering demand for its sprawl of office towers.
Canary Wharf is seen as a test case for re-imagining struggling business districts, after high borrowing costs and home working post-pandemic hammered commercial property values globally. Purpose-built complexes like Canary Wharf, Paris's La Defense and in many U.S. cities have been hit particularly hard.
The vacancy rate for offices in London's Docklands area - which incorporates Canary Wharf - has more than quadrupled from as low as 4% in 2017 to nearly 17% as of September this year, according to CoStar data. The vacancy rate in the more central City district is 11%, the data shows.
In response, Canary Wharf plans to revitalise the area by making it greener, revamping out-dated buildings and repurposing some into other uses including hotels, leisure, retail, academia and cultural uses, the executives said.
Overhauling offices will be costly, with the owners and any hotel operators likely to face costs running into the hundreds of millions of pounds or more.
The area's landlord, Canary Wharf Group (CWG) has had a tricky time financially. It said in April that its property values had fallen 15% in a year, driven by falling demand for offices, and last month it saw its credit rating cut further into junk territory by credit agency Fitch.
"There are certainly opportunities for us to introduce uses which are under-supplied," John Mulqueen, chief investment officer at CWG, told Reuters, adding hotels were a compelling option for vacant space.
CWG, owned by Canadian investor Brookfield and Qatar Investment Authority, is considering more than 30 approaches from hotel operators, Mulqueen said, adding that the area's office tenants - which include JP Morgan and Barclays - were supportive of the idea.
"They don't want to send (staff) off to the West End and pay 300 pounds a night," he said, referring to a popular central London district. "They'd rather keep them here."
He added CWG would be selective about hotel proposals.
By early 2025 Canary Wharf will have more than 1,000 hotel or short-term let apartment rooms available, including at hotel 'Tribe' that opened two years ago. A 74-bed boutique hotel is close to signing, which would open in late 2025, CWG added.
One senior London-based commercial real estate agent, who declined to be named, was sceptical about the potential for hotels, adding that visitors to London - including for work - typically preferred to be in the city centre.
CWG unveiled plans in July to redevelop one of the area's tallest office buildings, a 45-floor tower set to be vacated by HSBC, into a mix of uses including potentially a hotel.
Further buildings are likely to be repurposed, said Tom Venner, CWG's chief development officer, although he said offices would remain a core part of the mix.
GREEN SHOOTS?
The former docklands area is already building more flats, restaurants and laboratories, but now more focus will be paid to revamping the core office cluster, the executives said.
On Wednesday, Canary Wharf opened a new waterfront decking area to the public around one of its central docks, as part of a wider push to green the estate.
Mulqueen said office enquiries had picked up, and the landlord was in discussions with potential tenants about taking more than 300,000 square feet of space.
Canary Wharf will likely benefit from the lack of new office space being built across London, Mulqueen said.
"I strongly believe in the office market in the long run," he said.