The Association of British Insurers is being “crippled” by high rents at its City offices at the same time as making senior staff redundant, Money Marketing understands.
The ABI agreed a fixed 25-year lease agreement in 1989, the market peak for City rents, to let 51-55 Gresham Street in London until 24 March 2016.
The trade body believed it could make money from sub-letting parts of the 84,000 square foot building but City rents collapsed soon after the deal was agreed.
Knight Frank data shows the average City rent was £65 per square foot in 1989 but dropped as low as £32.50 in 1993 before rebounding to £60 today.
Documents published by commercial letting agents Jones Lang LaSalle in 2009 shows the total rent for Gresham Street is £4.5m a year.
The ABI does not publish accounts but it is understood the building has been fully let to minimise the costs, including the old staff tea room.
The trade body is expected to either renegotiate a lower rent ahead of the lease coming to an end, or move premises.
In October the organisation axed 16 roles as part of a restructure, resulting in senior directors Maggie Craig, Stephen Gay and Nick Starling leaving.
A former senior ABI staff member says: “It is letting floors well below the master rent. If there is a 5 per cent cut in fees in real terms then it means a 10 to 15 per cent cut in salaries, hence the redundancy programmes. Everyone knows it was a very foolish decision taken a number of years ago.”
Another source close says it is well known within the ABI that the City rent is “crippling” the organisation.
Facts & Figures managing director Simon Webster says: “Many organisations locked themselves into long-term rents, but clearly this was not a good decision by the ABI.”
The ABI declined to comment.