LONDON Nov 8 A relatively buoyant insurance industry is helping Land Securities fill a skyscraper under construction in London's financial district as investment banks retreat.
The property developer let almost 30,000 square feet on the 33rd floor of the Walkie Talkie tower to Lloyd's syndicate Ascot Underwriting, it announced on Thursday alongside its half-year results.
The large investment banks that have traditionally occupied much of the space in the Square Mile financial district around the Bank of England are cutting jobs, reducing their need for offices. The insurance sector, by comparison, is doing relatively well due to its counter-cyclical nature.
"The insurance sector is growing and there is a lot of consolidation among underwriters," said LandSec chief executive Rob Noel.
LandSec is developing the 38-storey skyscraper with Canary Wharf Group, majority owned by Songbird Estates. The latest letting means the building, designed by Uruguayan-born architect Rafael Vinoly, is a quarter pre-let ahead of completion in 2014.
The average rent paid by the three tenants signed to date is 62 pounds per square foot, the average lease length is 17.8 years and the average rent-free period offered as an incentive to sign for space is 31 months, Noel said.
But despite the insurance bright spot, London's financial sector will axe 13,000 jobs next year, bringing job levels to a 20-year low in 2014, the Centre for Economics and Business Research think tank said this week.
Developers are betting that a wave of lease breaks and expiries over the next few years will prompt tenants to move out of older buildings and into higher-quality new offices that are designed to be cheaper for tenants as they need less space per employee to occupy.
"A lot of the buildings built in the 1970s, 1980s and 1990s are knackered," Noel said. "Given the choice of an older, less efficient building where you have to wait 35 seconds for the lift and a new building, it's a no-brainer."
U.S. insurer W.R. Berkley is planning to build its own 40-storey skyscraper in the City financial district.
In central London, the Pinnacle skyscraper has stopped in its tracks as a stump in the ground after failing to find a major tenant to make it viable and the Shard, the European Union's tallest skyscraper that opened in July, is yet to find its first office tenant.
Adjusted net asset value per share at Land Securities was slightly higher at 864 pence in the six months through September while the value of its property portfolio edged down 0.1 percent to 10.9 billion pounds ($17.4 billion).