Slump Dampens Debut of London’s Financial Center : Cityscape: Demand for office space was high when ground was broken for Europe’s grandest urban renewal project.

LONDON —  The gigantic office building, its 800-foot, 50-story exterior clad in stainless steel and topped by a shining pyramid, gleams in the sunlight, a monumental new London landmark towering over the satellite buildings around it.

This is Canary Wharf, centerpiece of the London Docklands redevelopment along the lower Thames River. It is Europe’s largest urban renewal project.

The Canary Wharf complex represents a sort of New Jerusalem for planners, architects, financiers--and for the major investor, Toronto-based Olympia & York. All hope that it will flourish as a financial center and be the key to revitalization of a once-teeming area left desolate since shipping traffic began shifting downriver 20 years ago.

Docklands also provides--depending on the sharply differing views of its supporters and detractors--classic examples of what can go right and what can go wrong in huge urban projects.

Critics complain of poor transportation planning, displacement of longtime residents of the area, lack of shopping and entertainment opportunities for the new residents and housing prices beyond the reach of prospective buyers hurt by the economic slump that followed the stock market crash of 1987.

Docklands’ champions call it “the new business city of Europe.”

Whichever view is right, there is no question that economic realities cloud its future.

Many financial and real estate specialists fear that the centerpiece, Canary Wharf, may prove to be a spectacular flop as a financial center, a white elephant that may even bankrupt the developers.

The dramatic buildings of “Wall Street on the Water” are opening their floors to tenants--the first arrived at the end of August--amid London’s worst property slump since World War II.

Another major drawback for Canary Wharf is its location on the isolated Isle of Dogs--a bend in the Thames--with poor transportation to the City of London financial center and few amenities for the thousands of office workers expected.

The 26 buildings that will eventually make up the Canary Wharf complex will contain 10 million square feet of office space, with 50,000 employees anticipated. But that space will compete with millions of square feet of vacant offices available in the prestigious City of London and in London’s West End, where established or up-and-coming companies traditionally have been located.

In its broadest aspect, the Docklands redevelopment zone stretches from Tower Bridge eight miles eastward along the winding Thames, past Wapping, Limehouse and the Surrey Docks to the Royal Docks at North Woolwich, a renewal area of offices and apartments embracing 8.5 square miles.

The docks themselves--the open water spaces enclosed by locks with quays next to them--were dug out of marshlands to accommodate ships laden with riches 200 years ago, when London was the world’s busiest port.

The docks survived the German Blitz of World War II, but with the decline of shipping and its shift downriver to the container port of Tilbury, Docklands deteriorated into an industrial wasteland, though former longshoremen and other East Enders, mostly unemployed, still lived in the area.

Teddy Roberts, a 69-year-old retired dockworker standing in the shadow of Canary Wharf Tower, put it: “The docks were a place where people worked hard. After 10 years of being derelict, it’s good to see it come back to life.”

The London Docklands Development Corp. (LDDC) was created in 1981 to help developers revitalize the region through a complex mix of public and private renewal plans and tax-free “enterprise zones.”

Construction and refurbishment began soon after, just east of Tower Bridge at St. Katharine’s Dock and Yacht Harbor. Reconstruction has since included Wapping and Limehouse, and is culminating with Canary Wharf, along the old West India Docks on the Isle of Dogs.

The Canary Wharf complex is the would-be jewel in the Docklands’ crown.

The initial developer of Canary Wharf, G. Ware Travelstead of Texas, bailed out in 1987, and Olympia & York, one of the world’s most successful property firms, bought in. Owned by Canada’s reclusive Reichmann brothers, Olympia & York had taken over a similar project in New York, the World Financial Center at the southern tip of Manhattan, in the early 1980s.

When Prime Minister Margaret Thatcher laid the Docklands foundation stone in 1987, prospects looked good, office space was in demand: If the Reichmanns could build at $145 per square foot and rent space at $50 to $60 per square foot, the project would be paid for in three years.

Under the Reichmanns’ driving leadership, Canary Wharf quickly took shape--in less time than it took to clean St. Paul’s Cathedral. Men in hard hats worked seven days a week, erecting buildings designed by distinguished architects such as Cesar Pelli.

The elegantly detailed buildings have marble floors, granite, York stone, bronze and brass door handles. They have a solid look that some have compared to the style of downtown Chicago and New York architecture of the 1930s. The skyscrapers are complemented with 25 acres of squares, parks, fountains, flower beds and waterside promenades on Canary Wharf’s 91-acre site.

The buildings were designed to appeal to financial firms in the City of London. They offer large, unencumbered spaces suitable for brokerage trading floors, with state-of-the-art computers, telephones and other communications equipment, and air conditioning.

Yet, even as pile drivers were sinking foundations and cranes were hoisting steel girders, a growing recession and the downturn that followed the stock market crash were sending the financial property market into a tailspin. With one-sixth of the City of London’s space empty, firms thinking about moving to the Docklands were changing their plans, deciding to remain in the City because rents there were falling from a high of $120 per square foot in 1988-89 to about $50 per square foot, or about what Canary Wharf was asking.

With three times as much office space available as at any other time in the past 25 years, the past year has been the “most difficult business period for the property industry since the Second World War,” in the words of Trevor Osborne, president of the British Property Federation.

Meanwhile, the whole Docklands redevelopment project was the target of severe criticism.

The LDDC said 41,000 jobs had been created in the past 10 years, 17,000 brand-new positions and 24,000 relocations to the formerly dingy riverside area where now the well-to-do rub shoulders with the not-so-well-off. Municipal councilors of the half-dozen London boroughs encompassing Docklands complained that working-class people were arbitrarily shunted aside to make room for middle-class professionals.

The LDDC, these critics said, overlooked the needs of those already living in the area in its rush to court developers who would provide commercial office space and pricey homes for new office workers.

“The gulf between office buildings and expensive housing, and community dereliction and slums represents the biggest failure,” said Bryan Gould, the Labor Party’s environment spokesman.

Further, the Labor-dominated Assn. of London Authorities argued that there has been a net loss of jobs in the decade since the plan’s inception, with almost all of the new jobs going to outsiders.

Then, too, the government and the LDDC only belatedly realized that the Isle of Dogs and other Docklands areas were not well served by public transportation or roads and streets.

Construction was hastily begun on a transit train (average speed: 11 m.p.h.) known as the Docklands Light Railway, which only recently was connected into the London subway system. The computer-driven railway, built on the cheap with $130 million in public funds, turned out to be abysmally short of capacity and has been plagued by breakdowns, delays and undersized stations.

Similarly, the biggest hunk of public funds--$2.9 billion--was earmarked for improving roads. More than $500 million is being spent for the 1 1/2-mile Limehouse Link, Britain’s mostexpensive highway, which won’t be finished until 1993. Traffic jams on routes to the Isle ofDogs are endemic.

For their part, many white-collar employees are complaining about having to move from the compact, bustling City to the sprawling Docklands region, and everyone decries the transportation shortage.

At the same time, expensive new residential units--once touted as dreamy riverside havens for trendy, wind-surfing professionals--were hit by the recession and fallout from the market crash. Prices were simply too high to attract enough buyers to fill the buildings.

As for recreation in the Isle of Dogs and most of the rest of Docklands, there is no movie theater. The old Millwall soccer grounds long ago moved south of the river. Pubs are scarce. Shopping facilities are limited in number.

New Docklands homeowners found themselves with nothing much to do in the evenings except take the Light Railroad into town--and face the fact that it doesn’t operate after 9 p.m.

The failure to live up to the dream and the recession that followed the stock market collapse put many young executives out of work or on reduced incomes.

So fancy residential condominiums such as Butler’s Wharf on the South Bank, where teas and spices were once unloaded, went bust, as did the beautifully redone and ambitious Tobacco Wharf project, which billed itself as London’s Shopping Village.

Residents of the costly riverside condos complain that the promised amenities advertised in the brochures--swimming pools, Jacuzzis, health centers, bars, shopping malls and restaurants--had not materialized.

As for the expected social mix, the Assn. of London Authorities says that of the 15,000 dwellings built in Docklands since 1981, only 15% were low-cost public housing. So shabby homes remain near the gleaming new offices and apartments.

Grandiose Docklands projects have run into trouble: the $44-million, 13,000-seat London Arena, an Isle of Dogs venue for concerts, exhibitions and conferences completed in 1989, went into receivership earlier this year because of cost overruns and delays.

And the 4-year-old City Airport, built on a quay between the Royal Docks, has proved to be a disappointment because its runway is too short for jet aircraft and it serves only a fraction of the expected passenger volume.

A petition to lengthen the runway to for jets, and thereby vastly enlarge opportunities for flights to European destinations, is opposed by neighborhood groups who maintain that initial plans prohibited jets because of the noise.

As of now, Olympia & York says it is pressing ahead with plans to complete the Canary Wharf complex by 1997: 26 buildings with 10 million square feet, with 200 shops, a 400-room hotel and landscaping with 920 trees of 32 varieties, 3,000 shrubs and 83,000 assorted flower bulbs.

The Reichmanns have always looked to the long term, and Olympia & York officials say Canary Wharf is financially structured to outlast two property market recessions. “We’re offering a powerful magnet, with a marvelous quality of working environment,” said its London chief, Michael Dennis.

Still, the company admits that only 57% of its initial available space has been rented, well below original goals, and mostly to North American companies. Other firms that might like to shift to Canary Wharf must first find tenants for their spaces in the City. In some cases, Olympia & York has reportedly offered to pick up some companies’ remaining leases.

Nevertheless, American Express and the advertising agency Ogilvy & Mather are moving in, with the scheduled addition of blue-chip tenants such as Texaco, Morgan Stanley, Skidmore, Owings & Merrill, Bear Stearns and the Daily Telegraph.

But the advertising firm Saatchi & Saatchi has decided against a previously announced shift to Canary Wharf, and Barclays Bank thought about moving, too, but changed its mind.

And Olympia & York has asked Prime Minister John Major to consider moving up to 3,000 civil servants from Department of Environment buildings in Westminster to Canary Wharf office space.

Though the first tenants have moved in, the people seen around Canary Wharf today seem to be mainly construction workers and security guards. Ground-floor shops are yet to be occupied and the large (13,000-square-foot) Marks & Spencer food store is not scheduled to open for another year, or until there are enough customers in Canary Wharf to justify it.

Some locals, such as pub manager Phil Foster at the 100-year-old City Pride, are optimistic. As Foster sees it: “The trade in this pub is growing all the time; as construction men leave, the office workers come in. We have a large tourist trade too. I just see the new Docklands as a gold mine that everyone can benefit from.”

So 10 years after the LDDC was created--and after an expenditure of close to $2 billion in public funds and more than $14 billion in private money--Docklands as a whole, in the words of the Financial Times, is “a bewildering blend of futuristic inspiration and familiar decay.”

Eric Sorensen, LDDC’s chief executive, believes that the massive project has gotten a bum rap from critics and that an upturn in the economy will prove them wrong.

“We are engaged in a massive exercise to change the economic geography of London,” Sorensen said. “In the short term, of course, you will get sharp contrasts, but you have to take a longer view to see the benefits.”