REYKJAVIK, Iceland — Set against a vista of sea and mountains, the city’s modern concert hall and convention center, with its kaleidoscopic facade of multicolored glass, averages more than 140,000 visitors each month.
The thriving complex, which hosts fans of Björk and enthusiasts of yo-yoing, is a symbol of how the country has recovered from the economic crisis, aided by tourists, whose appreciation for Iceland and whose influx of cash are further helping to spur development.
Outside the center, construction vehicles hum, working on a project that will join the event space downtown with the heart of this capital city’s center, where restaurants and shopping abound. It is one of several projects in a nearly 680,000-square-foot mixed-use development known as the Harpa plot, or Austurhofn, meaning East Harbor. This vast area has been decades in the making and is an attempt to transform the neighborhood into a live-work-play area.
“This has been a big black hole since 2008,” said the Icelandic architect Asgeir Asgeirsson. “But now we are helping bring new life to downtown.”
Construction of the Harpa concert hall and convention center in Reykjavikbegan in 2007, but screeched to a halt as Iceland’s economy faltered during the global financial crisis. In 2011, the complex finally opened. A regular comedy routine performed there teaches “How to Become Icelandic in 60 Minutes.” And next summer, the International Yo-Yo Federation will host its annual competition at the site.
Mr. Asgeirsson, with his architectural firm T.ark, is now helping to better link Harpa with Reykjavik’s historic downtown, less than half a mile southeast, where places like Café Loki draw visitors for Icelandic delicacies, including dried fish and sheep’s head jelly. Long lines form at the city’s many hot dog stands, which sell the beloved lamb-based Icelandic dog topped with sauces and fried onions. Clothing stores sell a range of gear to handle the island’s quick-changing weather, like traditional Nordic sweaters made from local wool.
The new project, which T.ark and Mr. Asgeirsson are helping design, will include more than 355,000 square feet of retail and apartments, and a hotel. The upscale Edition hotel is owned and developed by the Boston-based Carpenter & Company, with the design partner Ian Schrager, and will be managed by Marriott.
Riding on Iceland’s recovery, the development of the rest of East Harbor is finally moving ahead. The turnaround is a relief for the country, whose three major banks went under in quick succession and whose currency, the krona, tumbled in the global downturn. Shortly after, the government issued capital controls to prevent money from leaving Iceland and further devaluation of the krona.
A big driver of this project and the larger construction boom in Iceland has been the deluge of tourists, who have helped Iceland bounce back much more quickly than some of its European neighbors like Greece and Italy. In 2009, Iceland, then a country of about 320,000, had 494,000 visitors, according to the Icelandic Tourist Board. In 2015, nearly 1.3 million people visited, and more than 1.6 million visitors are expected by the end of this year, according to Islandsbanki Research.
Promotions by Icelandair offering free layovers in Reykjavik on the way to Europe; the popularity of the television series “Game of Thrones,” which has filmed in Iceland; and the eruption of a major volcano in 2010, which brought spectacular photos into the mainstream and counterintuitively drew positive attention from travelers, have played a part in putting the country on the map for tourists. They come to explore the landscape, venture into volcanoes, clamber atop glaciers and dip into steaming geothermal lagoons.
Reykjavik draws tourists, said the mayor, Dagur B. Eggertsson, because of its “people, culture, free-spirited atmosphere and for being one of the safest cities in the world.”
Commercial real estate construction has raced to keep up with demand. The number of hotel and guesthouse rooms in Iceland increased 42 percent between 2010 and 2015, according to Statistics Iceland. But that has not been enough to accommodate the crowds. Many locals have leapt into the tourism business to fill the gap. Between December 2014 and November 2015, the number of Airbnb accommodations in Reykjavik jumped 126 percent, according to a report from Islandsbanki Research.
Icelandic pension funds have recently played a role in stoking commercial real estate. Unable to invest abroad since 2008 because of the capital controls, pension plans are now the largest investors in Iceland, and they are among the biggest shareholders in the commercial real estate companies that are listed on the stock exchange.
Iceland is now slowly lifting the capital controls, which could affect the commercial real estate picture because pension funds now have the opportunity to invest abroad.
But the changes may also help attract new money from outside, Mr. Eggertsson said, adding that “Reykjavik is interested in direct foreign investment in hotels and tourism.”
The planned Edition hotel has a budget of $125 million and will offer 250 rooms when it opens in 2018. The hotel, which will have six floors and a rooftop bar, will tailor its food and drinks to draw both Icelanders and visitors, said Kevin Montano, senior vice president for global development at Marriott. “We want our guests to experience the city like a local,” he said. The hotel will harness Iceland’s abundant geothermal energy to warm the radiant wood floors, and the restaurant’s menu will focus on the country’s specialties of fish and lamb.
The developer Richard Friedman, of Carpenter & Company, says he fell in love with the unspoiled Reykjavik, which he sees as a great place for business meetings between Europeans and Americans. “We want to create a hotel that is simple in an Icelandic way,” he said.
The adjacent retail space, as well as 100 apartments, will also aim to blend in with the surroundings, Mr. Asgeirsson said. These buildings will resemble the brightly colored connected houses of old Reykjavik. “Every staircase will have a different shape, color and height,” he said.
Near the planned hotel, construction crews are already laying foundations for another area that has been named Harbor Square, or Hafnartorg. It will include about 80 apartments, as well as office and retail space, and will cover about 250,000 square feet. The anchor tenant for the retail space on the first floor will be the Swedish clothing retailer H&M.
The final major plot in the East Harbor development is owned by Landsbankinn, the state-owned bank that was created in 2008 from the ruins of the failed private bank Landsbanki. It announced plans last year to create a 156,000-square-foot headquarters, consolidating 14 offices around Reykjavik, at a price of about $70 million.
The move has displeased some, including Gudlaugur Thor Thordarson, a member of Parliament who feels that selecting one of the most expensive pieces of real estate in Reykjavik was “irrational.” The banks should “respect that their business is a risky one,” he said. “And unfortunately the cost of bankruptcy ends usually with taxpayers’ carrying the cost.”
Runar Palmason, a representative for Landsbankinn, noted that the new headquarters consolidated operations, saving the company about $6 million a year. The building’s footprint will be 46 percent smaller than those of the separate offices combined.
One of the largest challenges for all of the East Harbor projects is that legally they are considered one plot because they share underground parking. That means they have to coordinate development and design plans, making for a “very complicated ownership structure,” said Oli Orn Eiriksson, the head of economic development for the city. “You have so many different parties building on the same plot at the same time.”
There is also concern about striking a balance between visitors and locals.
“The downtown has changed dramatically,” said David Mar Sigurdsson, a sales and marketing manager for the Icelandic company TG Verk, which owns the Harbor Square development and has invested $130 million in it. “I feel like a foreigner when I go there. There are so many visitors.”
While Reykjavik is buzzing with tourism, and construction cranes dot the skyline, it is also feeling the strain of the surge of visitors. The East Harbor developers hope the new offices and apartments will balance out the visitors with locals.
The country over all is concerned about the wear and tear from tourists on the natural wonders they visit. And in Reykjavik, the pressure is also felt on infrastructure, said Elsa Yeoman, a city councilor in charge of culture and tourism.
“We have been inviting so many guests that it has become expensive to hold the party. Someone has to pay for that,” she said. Still, “as locals, we have a more colorful city than ever before.”