If I were Boris Johnson, I would start my campaign to be London mayor by visiting the 30th floor of the Canary Wharf tower, headquarters of the company responsible for turning London’s derelict Docklands into a 21st-century Gotham City. There he will find the most remarkable scale models of the whole of London as well as of the Docklands itself. It’s a schoolboy fantasy, complete with buttons that light up the train lines and the runway at City airport. But for those with serious ambitions to run this great city, it is more than just that: it is a stark illustration of the challenges facing the capital.
When people list the things that have made London arguably the world’s leading financial centre, they often overlook Canary Wharf. But London would not be where it is today without it. I remember my first visit to Docklands on a cold, dark winter’s evening in 1993 for a meeting with Morgan Stanley, one of the original tenants. It was an eerie place, consisting of about half a dozen buildings, and seemed to be completely deserted. Friends who worked there in the early days hated it and people would move jobs to escape it.
Yet just 14 years later, Canary Wharf can justifiably claim to be the capital of the European investment banking industry. It has 14 million square foot of office space, is home to 90,000 office workers and is the biggest shopping centre within the M25, whose shops and restaurants now do as brisk a trade at the weekend as they do during the week. It is the only financial centre in Europe where it is possible to build offices big enough to accommodate the giant dealing room floors investment banks require and to house all their employees on a single site. What’s more, it has been the catalyst for the dazzling residential developments along the Thames at Wapping and now on the Isle of Dogs.
If we hadn’t had Canary Wharf, would all these investment banks have chosen to base themselves in London? I suspect not. Even ten years ago, many in the City were genuinely worried that the top institutions might decamp to Frankfurt. But who talks about Frankfurt now? Thanks to the vision of Michael Heseltine, who first saw the desolation of the post-war Docklands and pushed for the package of tax incentives and vital infrastructure – the Docklands Light Railway, Limehouse Link and Jubilee Line – that made the regeneration of the area possible, London has been able to expand and accommodate the growth that came with success.
But London won’t be able to maintain its position unless it continues to grow. On current trends, it will need another 56 million square foot of office space by 2026 – the equivalent of four more Canary Wharfs, according to the Centre for Economic and Business Research. Meanwhile, London’s population is forecast to grow by 800,000 to 8.1 million by 2016, according to the Greater London Authority. That’s like tagging a city the size of Sheffield onto London. Yet to those of us who live here, London already seems to be bursting at the seams. House prices have soared beyond the reach of ordinary people in most boroughs. And there’s a similar squeeze in offices too. A year ago, the boss of one big property companies was boasting he had just let office space in the City for over £46 a square foot, finally beating the peak of the 1980s boom. A year later, City rents have crashed through the £69 per square foot barrier and vacancy rates have fallen below 3%. Meanwhile, there is real deprivation in many parts of London, the traffic in London is virtually at a standstill, the tubes are overcrowded, Heathrow is a national embarrassment and there’s a shortage of affordable childcare.
For investors, this represents an opportunity. Property shares, which have fallen more than 30% this year on interest-rate fears and now trade at big discounts to net asset value, look too cheap. No wonder British Land last week chose to buy back a large slug of its shares. Housebuilders and other infrastructure and construction-related companies are also sure to benefit from London’s success.
But for Boris Johnson and other mayoral hopefuls, these are issues on which they will be judged. The mayor has few formal powers, other than over transport, the police and – soon – planning. And almost every decision he makes must be approved by a government that prefers to suck money out of London and has back-pedalled on Crossrail, a vital piece of infrastructure for the capital’s future.
But the mayor does have one potent weapon: the authority that comes with a direct mandate from an electorate of 5.6 million people – more than Scotland and Wales combined. Canary Wharf shows what a determined politician with a clear vision and formidable managerial skills, working with the private sector, can achieve. Boris should head up to the 30th floor of Canary Wharf and ask himself whether he is up to the job.
Simon Nixon is executive editor of Breakingviews.com