It is said that whatever doesn’t kill you makes you stronger. It is a phrase that seems apt for the City’s insurance sector at the moment.
After a year of unprecedented natural disasters, a combination of factors is conspiring to make the industry one of the most active in 2012.
According to Jones Lang LaSalle’s latest sector digest, insurance occupier office take-up in the fourth quarter of 2011 hit 278,289 sq ft – the highest since the final quarter of 2000.
Aon’s 197,042 sq ft prelet at the Leadenhall Building, in the EC3 insurance district, provided the bulk of the uplift, but 30,000 sq ft deals for the Hyperion Group at 16 Eastcheap and Hannover Re at 10 Fenchurch Street, both EC3, helped bolster the figure.
All three ensured a doubling of the sector’s share of the overall leasing activity of central London from 3% to 6%, albeit aided by a poor showing from the banking and finance sectors.
That figure should grow further if Lloyds of London is able to deliver its Vision 2025 strategic plan, which sets out its ambitions to expand into emerging growth countries and to make London the global hub for specialist insurance and reinsurance.
Quality insurers
Its main aim is to attract quality insurers to London – a project that has already begun with interest coming from China’s largest reinsurance company, China Re.
Meanwhile, growth in the insurance and pensions sector has already begun. Demand in Q1 reached 1.2m sq ft, making it the third most active sector in central London behind TMT and the legal profession.
“The reason the EC3 market is alive is that structural lease events are driving these tenants to make long-term decisions about their real estate,” says JLL director of central London tenant representation Mark Bourne.
“The majority of occupiers that are active at the moment have lease events coming up during the course of the next two to four years, and while the insurance market itself had a pretty tough year last year, the sense we have is that the strongest are getting stronger and the weaker are getting weaker. This is creating some interesting corporate activity and consolidation within the insurance industry.”
Developers have not failed to notice this, and whether by luck or design, four of the most significant schemes in central London – Leadenhall, 20 Fenchurch Street, 70 Mark Lane and 6 Bevis Marks – happen to be in EC3.
Walkie Talkie deal
Negotiations are well under way at Land Securities’ and Canary Wharf’s Walkie Talkie at 20 Fenchurch Street, with Markel International under offer for 53,000 sq ft at a rent of around £65 per sq ft, and Kiln under offer for a rumoured 80,000 sq ft in the region of £67.50 per sq ft.
Markel’ operations director, Hugh Maltby, declines to confirm the reported deal, but is happy to discuss the reasons the firm is on the move.
“Our lease is up in 2015. Where we are now is slightly tired, and it’s pretty inflexible in terms of being able to move people around and reconfigure it. For us, new offices are about better utilisation of floorplates. We would like to co-locate the support staff for the underwriters to help foster team working and team building, so having a bigger floorplate gives us more flexibility to do that.”
And that is certainly something that the 37-storey columnless Walkie Talkie tower can do. Its design will allow the firm to pack each employee into just 8 m2.
While most insurance companies seek to be as close to Lloyds of London as possible, some are starting to venture out of EC3. In May, EG revealed that AJ Gallagher had gone under offer for 60,000 sq ft at Minerva’s Walbrook, EC4, following Catlin’s relocation to west of Gracechurch Street in early 2011.
Rising costs
However, those in the sector claim these moves have been cost driven, and dismiss suggestions that EC3 could lose its insurance appeal.
But costs could soon become more of an issue for insurance firms as new regulations, such as Solvency II, begin to come into force. The regulation, which comes into effect in 2014, will see insurers incur substantial costs in terms of increases in capital holdings. JLL says this could lead to increased consolidation in the sector as small firms struggle to soak up the costs.
Markel’s Maltby remains bullish, however. “We seem to have weathered the financial crisis – the London market perhaps better than most,” he says. “The Lloyds vision alludes to growth, and it continues to be a centre of excellence, so hopefully London will maintain its position in the global market.”
Insurance company take-up in the City is at its highest for more than 10 years
Lloyds of London’s Vision 2025 strategy aims to make the City a hub for insurers
Existng insurance requirements
Jardine Lloyd Thompson: 250,000 sq ft
Brit Insurance: 100,000 – 150,000 sq ft
RSA: 80,000 – 120,000 sq ft
Gallagher Heath: 60,000 – 80,000 sq ft
Amlin: 120,000 sq ft
Miller Insurance: 70,000 – 80,000 sq ft
Markel International: 50,000 – 60,000 sq ft
Kiln Group: 50,000 – 60,000 sq ft
