Canary Wharf Group underscored its faith in the development potential of its financial hub in east London with the 90.4 million pounds purchase of full control of a semi-derelict site adjacent to its existing estate.

Purchase of the Wood Wharf site to the east of Canary Wharf -- for which ambitious development plans envisage more offices, apartments and a hotel -- marks the next phase in the company's long-term plans for its Canary Wharf estate.

The site has over the past 24 years come to rival London's City financial district, attracting tenants including HSBC and Citigroup , and the purchase shows Canary Wharf's belief in strong future demand despite the financial sector's current woes.

It also allows CWG, majority owned by Songbird Estates and which owned 25 percent of Wood Wharf, to diversify its office-led property portfolio.

For us it is interesting because Wood Wharf is a genuine mixed-use development at Canary Wharf, which has just been a pure commercial development. It does mark us in a slightly different direction, a CWG spokesman said on Wednesday.

About 3.3 million square feet of offices and shops, 1,600 homes and a hotel are planned for the 16.8 acre Wood Wharf site, representing almost a third of the Canary Wharf estate. It already has detailed consent for 1.5 million sq ft of offices.

We are becoming more involved with residential development and we see that continuing with the Wood Wharf development, the spokesman said.

Canary Wharf is a 97-acre estate with about 15 million sq ft of offices and retail. Of that CWG owns about 6.9 million sq ft and has consent for a further 5.3 mln sq ft.

The acquisition comes as investment banks severely prune back staff numbers and as companies shelve planned moves amid global financial turmoil, leaving some London developers struggling to attract tenants.

Law firm CMS Cameron McKenna and wealth manager Schroders are among companies that have recently pulled out of pre-let deals in major London schemes.

MIXED USE

CWG paid 52.4 million pounds for a 50 percent interest in Wood Wharf owned by British Waterways and 38 million for Irish developer Ballymore's 25 percent.

The deal with British Waterways included an annual ground rental payment to the government body, which will increase to 6 million pounds by 2016.

CWG may start construction of Wood Wharf's residential portion before the commercial aspect and would seek pre-lets for at least a third of the office space before commencing development, the spokesman said.

In September, CWG Chairman George Iacobescu said the group aimed to double the size of Canary Wharf by 2021, soaking up capacity for an extra 100,000 passengers a day from the Crossrail transport project and undertaking demand-led developments.

We see this as a positive transaction, as Canary Wharf has now control over the timing and design of the Wood Wharf scheme, J.P.Morgan Cazenove analyst Harm Meijer said in a note, adding the site's price of 25 pounds per sq ft was attractive.

In addition, Canary Wharf diversifies its portfolio and Wood Wharf will benefit from Canary Wharf's existing infrastructure, he said.

At 11:12 a.m. BT, Songbird shares were up 1.4 percent at 112.5 pence, outperforming a 0.7 rise in the broader index of UK property stocks <.FTELUK>.

(Editing by Hans-Juergen Peters and David Holmes)