MADRID, Jan 11 (Reuters) - Madrid has broken ground on a new business district that has been planned for three decades, but with similar zones in London, Paris and New York struggling as more people work from home, critics see the risk of the project becoming a giant white elephant.

With a first phase planned for 2035, Madrid Nuevo Norte (MNN) will add 1.6 million square meters of office space to the capital, including Spain's tallest skyscraper.

Plans also include 10,500 new homes and a large park, while Chamartín station will be modernized to become Madrid's hub for high-speed and commuter trains.

Faced with the loss of tenants in areas such as Canary Wharf in London due to the rise of telecommuting, Crea Madrid Nuevo Norte has studied 16 similar projects to prepare for the future.

Head of strategy, Miguel Hernandez, explained that the decision to mix offices with housing, stores and restaurants was based on this study.

"Nowadays, people want to work, live, have leisure and stores in areas that are not completely empty at night," he told Reuters.

Crea Madrid Nuevo Norte is a consortium formed by Spanish bank BBVA, real estate firm Merlin Properties and builder Grupo SanJose.

It is working with the Madrid mayor's office on the project, which has been stalled by litigation for nearly 30 years.

MNN will also try to attract a more diverse range of tenants than the business districts that have relied heavily on the financial sector to fill their offices. These include companies in the healthcare sector, to take advantage of its location next to one of Madrid's largest hospitals, Hernandez said.

The vacancy rate in New York's financial district has nearly doubled since the pandemic, when telecommuting skyrocketed, to 21% in the third quarter of 2023, according to real estate data provider CoStar Group.

Vacancies in Paris' La Défense soared to 19.7% in 1H2023 from 6.7% at the end of 2018, while Canary Wharf has lost 9.3 hectares in demand for its offices since the pandemic, according to CoStar.

HSBC is on the verge of abandoning Canary Wharf for a smaller office in central London, while Barclays is reducing its footprint there. Credit Suisse's long-standing presence is also uncertain following its takeover by UBS, which plans to cut thousands of jobs.

Canary Wharf Group intends to adapt and diversify by developing a giant life sciences campus and building more apartments, restaurants and bars. Canary Wharf Group did not respond to a request for comment.

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Spaniards embraced working from home during the pandemic more laxly than some neighbors. They go to the office an average of 2.6 days a week, compared with the European average of 1.8 days, according to a study by CBRE -- one of the world's largest real estate investment managers -- released last week.

Ismael Clemente, CEO of Merlin Properties, says this factor, coupled with a shorter commute than to Canary Wharf or La Défense, makes him confident that there will be demand for offices.

"If it takes you 20 minutes to get to work, why the hell are you going to work from home?" says Clemente.

But some analysts argue that Madrid, which already has AZCA and Four Towers business parks nearby, really needs more residential, not commercial, real estate.

PwC estimates that Madrid will need 11,000 new homes a year to meet demand, while a study by Gesvalt concluded that the city has a shortfall of 214,000 affordable homes.

According to EY, the city had 1.7 million square meters of vacant office space in the first half of 2023 and an office vacancy rate of 11%, up from 9.3% in 2020.

Javier Garcia-Mateo, EY's head of strategy and transactions for real estate in Spain, said MNN should reduce its planned office space by 500,000 square meters and build an additional 15,000 to 20,000 homes instead.

"Why are you going to develop offices when what you need there is residential?" said Garcia-Mateo.

But some neighbors in the area have campaigned against the project because they fear it will end up becoming a giant luxury suburb that marginalizes their working-class neighbors.

"When they have no outlet in the market, the developers convince the administration to allow them a change in grading, so that where the offices go, in 20 or 30 years it will be housing. Luxury, of course," said Vicente Pérez, who headed one of these campaigns.

The mayor's office did not respond to a request for comment. Hernandez, of Crea Madrid Nuevo Norte, said it would be difficult to change the classification now that the project is underway.

Merlin's Clemente said the project will take up to 40 years to complete and that offices will be added to the market to avoid flooding it.

Supporters of the project say it will help attract more international companies to the Spanish capital.

Paloma Relinque, director of capital markets at CBRE in Spain, says Madrid lacks prime offices that meet the sustainability standards they demand. The vacancy rate for grade A offices in the area where MNN will be built is around 0.7%, compared to 7.8% for all offices, according to CBRE.

José Ramón Iturriaga, fund manager at Abante Asesores in Madrid, which owns Merlin shares, drew parallels with the recent surge in luxury hotel construction in the city.

"If you don't have this kind of premium office space, certain high-end business centers won't come," he said.

(Reporting by Charlie Devereux, Corina Pons and Guillermo Martinez; edited in Spanish by Benjamin Mejias Valencia)