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The Future of the City of London Part Two

The Future of the City of London part two

In January 2020 we were delighted to have the Lord Mayor of the City of London leading the debate on the role of the City and that of the office going forward. Business leaders joined the Lord Mayor to discuss how the City of London was going to attract people back and how there was now a chance for the City to become a more vibrant residential and green location. During this discussion, it was mentioned on more than one occasion that employers in the City need to talk to other sectors, such as leisure & hospitality, retail and transport, as these play a vital role in the future of the City of London.

We were therefore thrilled to welcome Nick Mackenzie CEO of Greene King, Alex Williams Transport for London, Robin Gisby Chairman LNER, Mike Clasper Chairman SSP, as well as key figures from the financial services and insurance sectors to our discussion on 25th May.

Dominic Christian, Global Chairman Reinsurance Solutions at Aon, set the scene for this second discussion.

Dominic outlined how Aon is based at the ‘Cheesegrater’ building and has 5000 people based in India, where colleagues are facing a different challenge. This reinforces how ‘tomorrow’ will vary dependant on where you are based. Aon’s London offices can hold 3000 people, but with social distancing this reduces to 600. Highest attendance to date is 175 people.

“The value of seeing people face to face“

Dominic talked about the beauty of seeing people in 3D again. He has recently conducted external meetings where the value of the 10-minute discussion over coffee before getting onto business was brought back to life. Personal wellbeing is top priority but helping define the sense of a place of work, as a linkage, is vital. Connecting people to colleagues and the company which employs them is essential. Similarly, convincing people of transport and building safety is critical.

“So many challenges ahead”

Many fundamental questions now need to be addressed; Dominic was recently asked if Friday should be considered a working day at all? Should the working week be a 4 day week of 10 hrs per day? Conversely, many sectors such as hospitality and transport are 7 days a week so why should the City be any different? Parts of the City notably EC3, are very insurance sector centric but very few people live in the area. The challenge, therefore, is building localism, activism and a community for people commuting to the City for work. Insurance is an industry that tries to collaborate, it has mutualisation at its heart and thus developing purpose led companies is a traditional ambition. So, Aon is constantly seeking to contribute to its local environment. How do City of London based organisations build a culture that exists in other parts of London e.g. the West End, which saw a more rapid return during last September and October? How do we build western values into eastern places?

How do City of London based organisations build a culture that exists in other parts of London e.g. the West End, which saw a more rapid return during last September and October?

The Brexit issue has been delayed due to Covid but it requires a charm offensive from the City to get the right outcome. Aon, like many organisations, is striving towards helping to build a greener and fairer society. How we think about climate, COP26 and the research we can bring to ESG is a key focus area for Aon and insurers in the City. From a D&I standpoint, the City insurance industry has been actively involved through the Dive-In festival which was started in 2016. Dive-In is now in 38 countries but was born in the City of London. It had 13,000 people physically attend in 2019, and in 2020, it had 29,000 people attend through the virtual world. Perhaps, an example of the extended reach and value of social media.

Nick Mackenzie from Greene King gave his thoughts on the part Leisure & Hospitality will play in getting people back to the City.

Nick outlined the challenges Greene King has faced in the last 18 months. Since the pandemic, the company’s 2700 pubs have lost about £500m across the country, but acutely in London. They have 158 pubs in greater London, 80 in central London and 20 in the City. Most of the pubs are now back open, and Nick is very passionate about the role that the pub plays in communities, both in the suburbs and major cities. The City of London has found it more challenging for obvious reasons, no tourists in central London and the workers haven’t come back in any great number. On average, a pub needs 80% of pre-Covid levels to break-even.

In the first week of the May 2021 re-opening, venues nationwide were around 15% down from 2019 levels. However, in the City, venues were about 40% down on 2019 levels.

In the summer of 2020, during re-opening, overall, Greene King’s business returned to break-even. In the City of London, pubs were, however, 50%-70% down. In the first week of the May 2021 re-opening, venues nationwide were around 15% down from 2019 levels. However, in the City, venues were about 40% down on 2019 levels. Luckily, Greene King is a big company and able to sustain this level of variation, but there are a number of smaller companies who cannot, and a real danger is that many pubs will be lost in the City if things do not change quickly. Things are getting slowly better, with more people coming into London. Greene King will adapt and diversify but when trade is down by these levels, it’s hard for smaller businesses to survive.

“Survival of small businesses?”

The return to hospitality in cities is going to be slow, but action should be taken now to bring people back. The pub is part of the experience of a city employee. Selling this to employees bored of being at home all the time will form a key part of the return to the office. Linking with Government and local authorities, whether that be the Mayor’s office, central Government or organisations like TfL, to develop real initiatives to drive people back to London for work, pleasure or tourism is vital. Eat Out to Help Out was very successful and persuaded people who otherwise wouldn’t have visited a pub or restaurant to do so in a safe way; resulting in an enjoyable experience which people wished to repeat. Building initiatives to change behaviours is what will get people back to the City.

“We are ready when you are”

Alex Williams from TfL outlined how pre-Covid, 4 million people per day travelled on the Tube and 6 million people on the bus network. Last April, during the height of the first lockdown public transport, the Tube was down to 5% and the bus network down to 20% of normal levels. Numbers have steadily increased and recently the Tube is at 40% of normal levels and the bus network c60%. Bus flows are healthier due to more blue collar workers who do not have the luxury of working from home. On the Tube, weekend flows are higher at around 45% of normal levels. There is an interesting spatial variation, Canary Wharf and the City are quiet, but the West End is very busy and has a feeling of pre- Covid. There will be no anticipated material change in these flows until after the 21st June (clearly the date has subsequently changed). TfL’s business model, where normally 72% of income comes from fares, is currently completely broken and reliant on Government support. There needs to be a close working with Government to bring back confidence for customers.

Regular surveys indicate that customers do perceive the network is safe. TfL is running a campaign – ‘we are ready when you are’ to win back people not currently using public transport. In addition, there is the Mayor’s campaign ‘Let’s do London’, to remind people of what is great about the City. The duration and scale of the pandemic is unprecedented, with the potential to change the way this city functions. TfL does anticipate long term change in the way office workers commute. If, however, everyone comes in Tuesday to Thursday, the network will have a big problem. This will need active management. Earlier messages to avoid public transport has led to more people driving, creating additional congestion, but also the positive impact of more people cycling and walking. TfL partnered with Arup about the future of the central activity zone in the City, resulting in some very interesting analysis. It cited a deep confidence that the City will return to success, the fundamentals are very strong with the magnetic pull of the centre. We have to be mindful of this in our aspirations to get people back to the City. If people are coming back less frequently, they will be pickier about the range of facilities and attractions on offer.

“Clean and safe public transport”

Robin Gisby talked about c£9B of subsidy from the Treasury going into rail which is huge and unsustainable. There is a quite widespread view that commuters do relatively little to generate economic value for a city, compared with leisure or tourism so not much support for policies to stimulate demand. Staycations, theatre and shopping is preferred to people coming into a city on a season ticket grabbing a sandwich and a pint then going home again. If the level and structure of fares is to be changed, it requires more support from the DfT and Treasury to get more people going to the theatre and shopping, as opposed to a working commuter coming into Waterloo. London is different to the northern businesses he is involved in, which have seen a bigger increase in commuting due to more blue collar jobs having to commute by rail. The cleanliness point is huge, people remain spooked about public transport resulting from unhelpful messages from Government during the height of the pandemic i.e., ‘Coronavirus also takes the train!’ Great Western’s adverts recently are all about the cleanliness of their trains, and although we know that surface contact isn’t the risk it might have been, that has definitely resonated with the public.

More electrification and sensible ways to travel are front of mind. The big point is balancing capacity and demand.

People can be socially distanced on a reservation system coming into Kings Cross, but if numerous commuters then get on at Peterborough making the train crowded then customers become unhappy. Decarbonisation is here to stay and resonating with the younger generation. More electrification and sensible ways to travel are front of mind. The big point is balancing capacity and demand. Running a fixed cost system where there is reduced predictability, is also extremely hard for the retail activities around the station. Building more capability around the station to enable Teams business calls in a quiet place with good connectivity is vital.

“London lagging behind Europe”

Mike Clasper added, everyone is predicting that domestic leisure will come back first. SSP are having their best days in London on Friday, Saturday and Sunday, which is no surprise. Air travel in the US is the best region globally being driven by domestic leisure. This will evolve to regional leisure followed by intercontinental leisure. Business travel will come back slowly, with international business travel being the laggard. London is a stand-out negative in terms of commuter travel compared to other countries. Last summer when most places were open, the London commuter did not come back to anywhere near the levels of France or Germany. The ability of the London workers to effectively work remotely, improvements in hybrid technology and an unpleasant commuting experience, has resulted in lower levels of engagement. The biggest areas of concern from SSP’s perspective, regarding a full recovery, are London commuters and intercontinental business travel.

“FOMO attracting people back”

Bronek Masojada (CEO Hiscox Group) remarked that the previous day (25th May) had been the busiest day in terms of staff coming back into the office since last March, with 120 people out of a possible total of 800. The ultimate question is how you encourage people to come back in when Tuesday is the new Monday and Friday is the new Saturday? Bronek felt the key short-term focus is to get people back in by playing on FOMO (fear of missing out). In the Hiscox café beer, wine and snacks were available from 5.30pm onwards so colleagues could have drinks together. This will be repeated in 2 weeks with a communication to all London staff letting them know this is happening in the office. From the 21st June, every employee across the country will be given £25 to be spent on drinks or supper with work colleagues within walking distance of Hiscox offices. A budget of £50,000 has been signed off for these staff events throughout July, August and September to entice staff to come back in. The view is if people come back to the office 3 times, they get over their fear of transport or office safety and realise they miss their colleagues. Eventually, hybrid working will become the norm based on a rotation system, but in the short- term experimentation is the focus as opposed to finding a magic bullet.

“NYC slower than London”

Angela Knight’s view was driven through the non-executive lens across a number of her boards. To give some comfort to London, Angela said that one of her Boards had a bigger challenge at the moment in getting the workforce back to their desks in New York and they were not the only business with global operations with this problem. The pandemic has brought forward change that would have taken 5 or 6 years otherwise. Mixed hybrid-type working will be the norm, as opposed to something that will pass. London transport will have a problem, with the most popular days in the office being Tuesday, Wednesday and Thursday, no matter how much you bribe staff to come in on a Monday or Friday. In her personal experience, the commute into Paddington on the train is fine, but taking the Bakerloo line on the tube is not fantastic. The disinfectant gel is not readily available and there is still a tendency to crowd into the same carriages. People will take the alternative to being crammed in on the Tube, which is a long-term problem for TfL and possibly rail.

Mixed hybrid-type working will be the norm, as opposed to something that will pass. London transport will have a problem, with the most popular days in the office being Tuesday, Wednesday and Thursday.

Marcia Cantor-Grable talked about FS boards, which are heavily tech focused and virtual in many cases, played out very well through work they had done pre-Covid. Their operational resilience was demonstrated. Teams across all ages are keen to get on to next generation businesses and product lines that will ensure longevity. This is an interesting mindset! Trust is the key word, both in terms of cleanliness on public transport and leadership to nurture a return to the office.

“No choice for Blue Collar workers”

David Howden (CEO Hyperion) felt that if the City is to be vibrant again, leaders have to utilise the push and the pull. Transport has to be safe and attractive. The commuter experience and the City giving vouchers encouraging people to go out is very important. Howdens have 400 people back in the office out of 2500, and those who are back are saying they had forgotten how much fun the office /City is. At some stage, to build a business and culture people will need to come back to the office. Staff are paid a lot of money so will be expected to come in or be paid less money should they wish to work from home. Blue collar workers do not have a choice. Ultimately, if this doesn’t happen offices will move outside of the City as people need to be together.

Matthew Moore felt that ultimately, there has to be a purpose for coming back. We speak for the insurance broking community, underwriters and Lloyds of London. As yet, as a collective, a compelling argument hasn’t been made for an enduring return to the City. Some of the comments made today are smart tactical manoeuvres but this doesn’t address the fundamental point of what makes the City of London unique. Distributing economic value causes concern due to certain things being unique and incredibly valuable about all people coming back together in the physical world.

Dominic Christian summarised by saying:

Nick’s points on subsidisation and incentives were very interesting – there was a sense that in certain places these must stop, but clearly a phased reduction would be optimal.

It was incredibly powerful listening to the NEDs talk about their global experiences. The challenges of the transportation sector have been brought to life with extraordinary realism and transparency by the leaders from whom we heard. He commented those connected with this area had among the most difficult jobs in the country. Dominic went onto say that Bronek talked with his usual practical elegance and there was clear learning for us all. As ever, David enthusiastically reminded us never to underestimate the power of enthusiasm and energy. Matthew Moore closing our session beautifully by asking us to sell the story of the City of London. We all recognised there is much to do on this, but Matthews’s point was extremely well made.

It was agreed that there was a need to reconvene in the autumn when more will be understood post-lockdown as well as to address some of the Brexit & ESG challenges going forward. Paul Dreshcler CBE, Chair of London First and Chairman of International Chamber of Commerce has agreed to lead these discussions in September 2021.

Hoggett Bowers are very grateful to all our guests and a special thank you to:

Alex WilliamsDirector of PlanningTransport for London
Angela Knight CBEIndependent NEDArbuthnot Latham
Bronek MasojadaCEOHiscox Insurance
Cecile FresneauExecutive DirectorQBE (UK) Insurance
David HowdenCEOHowdens
Marcia Cantor-GrableNEDSociete Generale International Ltd
Matthew MoorePresident & MDLiberty Speciality
Mike ClasperChairmanSSP
Nick MackenzieCEOGreene King
Robin GisbyChairmanLNER