LONDON – The new Chinese owner of the landmark Lloyd's Building in London could face the financial burden of an empty building as the insurance market considers a move out of its high-maintenance home.
Insurer Ping An <601318.SS> paid 260 million pounds ($388 million) for the Richard Rogers-designed office tower on Monday, but Lloyd's of London Chief Executive Richard Ward told Reuters the structure's striking design came at a cost and Lloyd's wasn't tied to the purpose-built site that bears its name.
Ping An, which has not officially confirmed the purchase, said it did not comment on specific investments.
Commercial property investors run the risk of vacancy as all tenants keep property costs under review. But finding a new occupant for the 14-storey structure would be uniquely difficult.
Completed in 1986, the building's interior is an open-plan atrium designed as an underwriting marketplace and its protected status means there are tight restrictions on conversion or modernization work.
The structure, often referred to as the "inside-out building", has its ducts and lifts on the outside, in similar fashion to the Centre Georges Pompidou in Paris, which Rogers designed with Renzo Piano, the man more recently behind London's Shard skyscraper.
"Of course we'd move. To say never to anything would be absolutely daft," Ward said. "We have breaks in the lease and any sensible person would look at what their options are."
"I can't guarantee you'll get to the ground floor in the lifts because they break down with some frequency," he said. "That's the fundamental problem with this building. Everything is exposed to the elements and that makes it very costly."
But Ward, speaking to Reuters before announcing his departure after eight years in the job, said there was an "emotional attachment" to the site.
STAYING PUT FOR NOW
Lloyd's 16.7 million pound-a-year lease expires in 2031 but it has a break option in 2021 and is investigating the merits of a new purpose-built home as one option, a move that could take seven or eight years of planning, a source close to the situation said.
Lloyd's did not comment on the building's running costs, which include the service charge and electricity bills, but they are several times higher than a normal office block and the total is broadly similar to the rent bill, the source said.
"I think this was a poor deal," said the source, who added that other potential buyers had been put off by the risks.
Any move would not take Lloyd's far as it is the epicenter of the insurance industry located in the EC3 postcode area of the capital's financial district and companies vie to be a short walk from the building, where deals are still done face-to-face.
The area has been one of the few bright spots in Europe's property market since the financial crash, benefiting from the relatively counter-cyclical nature of the insurance industry versus more muted demand for new offices among banks.
Lettings at the so-called Walkie-Talkie and Cheesegrater skyscrapers, which are under construction and transforming London's skyline, have received a boost from their proximity to the Lloyd's Building.
($1 = 0.6695 British pounds)
(Reporting by Tom Bill; additional reporting by Clare Baldwin; editing by Tom Pfeiffer)