How Lloyd's Of London Moving Office Could Reshape The City Real Estate Market

News that an organisation occupying a building of about 250K SF might be looking to move office would normally be interesting, but not that important in the grand scheme of global finance.

But when that organisation is Lloyd's of London, things are a bit different. 

Lloyd's of London, the specialist insurance market where £36B of insurance was underwritten in 2020, is considering moving from its iconic home, an "inside-out" Richard Rogers-designed building at One Lime Street in the City known simply as the Lloyd's building.

Lloyd's has existed for more than 330 years, been located on its current site since 1925, and moved to the current building in 1986. It is weighing its options because of the cost of running the building and a desire to implement more flexible working practices said React News, which first reported the move.

Lloyd's has a lease that runs until 2031 with a break clause in 2026. React said that it could move into new premises totalling 150K SF. Its current home has 205K SF of space devoted to insurance underwriting, centred around its famous underwriting room, plus other ancillary space. 

Lloyd's real estate decision could have a major impact on the physical geography of the City of London, and more broadly, the way one of its biggest sectors, insurance, operates.

The syndicates of insurance providers that band together to form Lloyd's typically offer insurance on unique or heterogenous items or businesses, like art, ships — or commercial property. 

For that reason, much of the business of providing the insurance still happens in person, with the underwriters who provide insurance meeting with brokers acting for clients to discuss how much insurance will cost in the underwriting room in the Lloyd's building. Any time a ship is lost at sea anywhere in the world, it is recorded in a ledger in the underwriting room using a quill and ink. 

Because of the face-to-face nature of the business, proximity to Lloyd's is vitally important to insurance companies and brokers in the City, and these companies cluster around the Lloyd's building. 

In insurance, brokers Marsh & McLennan and Jardine Lloyd Thompson are considered to be at the very outer reaches of the sector. Both are an eight-minute walk from Lloyd's.

“Lloyd's remains the central focal point for insurance firms,” Knight Frank Central London Tenant Representation partner Jack Measom told Bisnow, which took a deep dive into the future of Lloyd's and the London insurance sector in January 2020. “Geographically, every search I do for an insurance firm relates to its distance from Lloyd's.”

Brookfield head of Central London leasing Martin Wallace recounted how when private equity firm KKR bought insurance broker Willis in 1998, it planned to move the company to London’s Docklands area, 25 minutes by train from Lloyd's. By 2004, the broker had leased 420K SF in a building within spitting distance of the market.

That has made the EC3 postcode, where Lloyd's is situated and which the insurance sector dominates, a big draw for developers. And it has rewarded them handsomely. The insurance sector has accounted for an average of 8% of City take-up annually, according to Knight Frank, or 450K SF a year. The sector accounts for 11% of all City of London office space of 10K SF or more, according to CBRE. 

“There is a finite supply of assets in that area,” Wallace said, adding he believes permissions to build tall towers in that part of the City are likely to become more scarce. “You have the insurance sector there, there is the micro infrastructure of bars and restaurants up little alleyways where the deals in that sector get done, plus it is becoming more appealing to tenants in other sectors.”

When Landsec and British Land developed speculative towers on Leadenhall Street and Fenchurch Street near Lloyd's in the wake of the financial crisis, they were filled up mainly by insurance companies like Aon. Both companies later sold the projects for huge profits. Swiss Re built London icon the Gherkin in the shadow of Lloyd’s.

Before the current property review, Lloyd's had been undertaking a review of its working practices. It was shifting toward more flexible and screen-based work, with potential plans to put screens in the underwriting room so brokers and underwriters could interact digitally. 

Such changes, and a change in Lloyd's physical location, could have a big impact on where big insurance companies and brokers choose to locate themselves in London, how much space they need, and whether they opt to have large offices in London at all. 

Insurance industry grandee Stephen Caitlin told Bisnow he thinks headcount in the London insurance sector could reduce by 25% to 50% over the next 10 years, vastly reducing its need for physical space.

“There is no doubt that the ability to collect and use data using AI and algorythms will change the industry,” the Convex chief executive said.

That will have a fundamental impact on companies and their real estate needs.

“It is a big question as to what extent people are part of the equation,” Caitlin said. “A lot of the work that is being done can be replicated by machines and that means headcount will be down 25%-50% over the next five to 10 years. And when I look at all the money being put into property investment in this area [EC3], it is difficult to contemplate what the value of this property will be beyond 10 years’ time.”

Last year he said that Convex decided not to take space in the Lloyd's building because that would have slowed down the expansion of the business.