Research shows that insurance sector has been major prop to City office market
• 30% of all City lettings in 2009 have been to insurance companies
• Majority of insurance industry players have come through credit crunch in good shape
A string of recent lettings shows how vital the insurance sector has been in propping up the City of London office lettings market throughout 2009, says NB Real Estate, the leading commercial property agency.
According to NB Real Estate’s research, at least 30% of all City of London office lettings in Q4 2009 were to insurance companies. Of the total 860,000 sq ft of office space let in the City, at least 250,000 sq ft were taken up by the insurance sector.
NB Real Estate says that the insurance sector has been taking advantage of the two year collapse in office rents to upgrade to more prestigious offices. Unlike other parts of the financial services sector the insurance industry has survived the credit crunch relatively unscathed.
Explains James Gillett, Director, City of London Agency, NB Real Estate: “Relative to the terms that insurers and insurance brokers were having to agree for new space a few years ago current rents and incentives are seen by many as a steal.”
“Historically the space requirements of the insurance sector in the City have been lower than those of banks, but over the last year they have proved to be a vital prop to the market.”
“Where business uncertainty pushed property relocation down the board agenda for many financial services firms, the insurance sector has taken a very different approach. Many have seen the opportunity to upgrade counter-cyclically.”
“Whilst other financial services organisations are only just beginning to look at new space, insurers, reinsurers, insurance brokers and actuaries are actually completing deals. They have been actively reviewing the opportunity for sometime.”
Recent major lettings by insurers and insurance brokers over the last year in the City include:
• Catlin taking 115,000 sq ft at 20 Gracechurch Street
• R K Harrison Insurance Brokers taking 44,057 sq ft at 1-7 Whittington Avenue
• RFIB taking 40,000 sq ft at 20 Gracechurch Street
• Talbot underwriting taking 42,000 sq ft at 60 Threadneedle Street
NB Real Estate says that the driver for many insurers in addition to an attractive financial deal is the opportunity to move to offices that allow them to work more efficiently and adopt modern working practices.
James Gillett comments: “There has been a revolution in the way that the services sector occupies space over the past decade. Businesses are now much savvier on the importance of a quality working environment for recruiting, retaining and motivating staff.”
“It’s not to say that location isn’t important – it is and always will be. But, we are definitely seeing business adopting a more flexible approach in pursuit of quality space. Where the EC3 postcode was once absolutely fundamental for a business in the insurance sector, many will now settle for a position ‘close to’ if the building and the financial deal are compelling.”
“An example we came across recently when advising landlord Invesco, is Milliman, a US firm of actuaries, which has taken 10,000 sq ft at 11 Old Jewry, EC2, in the very centre of the City, moving from a more fringe location of Bunhill Row, EC1. Similarly, other insurance companies have moved away from the traditional Lloyds Triangle such as Talbot Underwriting to 60 Threadneedle Street and Catlin to 60 Gracechurch Street.”
NB Real Estate says that the market is expected to receive a further boost from outstanding requirements, such as the 70,000 sq ft requirement from Markel.
Adds James Gillett: “Prices for prime offices in the very heart of the City had become so competitive that we have seen a steady stream of tenants moving from secondary space to higher quality offices in better locations.”
“Our view is that demand from the insurance sector played a big part in City rents stabilising in Q4 2009. The most generous rent free offers are now off the menu.”
“If you had suggested to a City tenant 12 months ago that they would need to plan quickly to catch the best deals they might well have questioned your motives. Many tenants with short to medium term growth plans are now starting to get concerned over whether the space they need is going to be around when they need it let alone worrying whether they will have missed the low point in the rent cycle. How the world changes!”