The New Capital of Capital

It's not unusual for developers to throw up buildings without tenants locked in, but Broadgate Tower and the adjoining 201 Bishopsgate building are not your average speculative office project. This one is remarkable for its scope and ambition. When the tower opens for business next year plum in the middle of London's financial district, the 35-story office property with 1,200 sq m of rentable space per floor will dwarf virtually all of its nearest neighbors. A decade in development and costing more than $570 million, Broadgate Tower and its matched 13-story Bishopsgate building come with all the conveniences, including double-decker elevators and easy access to nearby Liverpool Street Station. This, the biggest such office project in the history of the City — as London's financial center is known — has it all. Everything, that is, except tenants.

But Paul Burgess, the head of London leasing for British Land, the company behind Broadgate Tower, isn't worried. "We're coming to market at the optimum time," he says, as he prepares to sign up some of the legions of investment bankers, corporate lawyers and fund managers that make the City their home. The reason he's bullish? Demand for office space is tied to the health of London's financial-services sector and, by many measures, the City has never been fitter. The U.K. financial sector contributed 3.5% of Britain's gdp in 2005, a leap from 2.4% in 2000. "You can sense growth taking place," Burgess says. The project, he says, represents, in glass and steel, "confidence in London's financial services."

His faith seems well placed. Like its skyline, London's profile as a financial hub is rising. While the U.S.'s mammoth $13 trillion economy provides a bigger market in domestic shares listed on Wall Street's two major exchanges — nasdaq and the New York Stock Exchange (n.y.s.e.) — Britain's more modest economy (it's the fifth largest in the world) has forced London to transform itself into a more internationally minded financial center to stay competitive. That transformation has become so successful lately that it has led to widespread speculation over whether London or New York City will become the world's supreme financial capital of the 21st century. While the n.y.s.e. and nasdaq threw swank cocktail parties during the annual gathering of the World Economic Forum in Davos, talk of London's rise among business leaders was even more intoxicating. "London's openness, to foreign capital, to trade, to immigration," has helped it forge "a tremendous set of advantages," Laura D. Tyson, a former chairman of the White House's Council of Economic Advisers and ex-dean of the London Business School, told time.

It wasn't always this way. A few decades ago, London's three-centuries-old role as one of the world's great business cities seemed threatened by overregulation. While the government dumped controls regulating foreign exchange in 1979, London continued to lose ground to other financial hubs because its equities market remained a closed shop. Long abolished in New York, minimum commissions on the London exchange killed price competition and risked turning the city's securities market into a backwater as money managers went elsewhere for a better deal. But in 1986, sweeping deregulation known as the Big Bang finally blew things wide open. Out went the late starts, long lunches and cartel practices beloved of London's fusty gents. In came U.S. investment bankers toiling for Goldman Sachs, Merrill Lynch and others, and, with them, a vital injection of talent and competitive instincts.

London's pre-eminence wasn't guaranteed by the Big Bang, however. More recently, the U.K.'s decision to opt out of the euro in the early '90s stoked concern that Frankfurt — now home to the European Central Bank — would eclipse the City as Europe's leading financial center. Those concerns have gone the way of the franc, lira and deutsche mark. Thanks to London's ability to exploit its long-standing expertise in marketmaking and English's position as one of Europe's primary languages, there are now more euros traded for dollars, pounds and yen each day in London than in the euro-zone countries combined. The City's share of the world's foreign-exchange trading has risen to a third, more than any other city. But London's dominance of Europe doesn't end with currencies. According to the Centre for Economics and Business Research (cebr), a London-based consultancy, the U.K. accounted for 35% of the E.U.'s total institutional financial service business in 2005.