MARSH REPORT July 2016 Sky-high Risk: The Impact of Increasing Tall Tower Construction in the UK MARSH REPORT July 2016 CONTENTS 3 Executive Summary 6 On the Rise 8 Heightened Risk Mitigation 12 Mitigating and Transferring Tall Building Risks 12 Political Impact on Future Projects 13 Conclusion 14 About Marsh 14 About this Report 15 References 2 Marsh MARSH REPORT July 2016 EXECUTIVE SUMMARY Skylines in the UK, particularly in London, have been undergoing a rapid evolution in recent years. Today, more tall buildings are being planned and constructed than ever before, with 436 towers – defined as those with more than 20 floors – proposed, in planning, approved, or under construction in London, according to research by New London Architecture1. As the number of tall buildings under construction in the UK increases, greater focus needs to be placed on mitigating the associated risks, which can lead to project delays and significant reinstatement costs. While recent developments, such as the recent UK vote to leave the European Union, could impact planned projects moving forward, we expect to see this trend continue over the long-term. This paper has been designed to highlight and bring greater awareness to the various risks and insurance challenges associated with tall tower construction in the UK. Sky-high Risk: The Impact of Increasing Tall Buildings in the UK 3 MARSH REPORT July 2016 FIGURE 1 London’s tallest buildings, completed and planned Source: Skyscraper Center The graphic below (FIGURE 1) shows a selection of the tallest completed, under construction, and proposed buildings in London. Out of these buildings, 13 are proposed or under construction demonstrating how London’s skyline is set to be transformed over the next decade and the growing trend towards tall tower construction. The height of London’s skyline remained largely unchanged during the 1980s and 1990s, with only Tower 42, One Canada Square, and the Panoramic being completed at a height of more than 20 floors. In contrast, since 2000, 50 buildings with more than 20 floors have been built in London, with a further 25 under construction and due for completion over the next three years. The Shard is currently London’s tallest building standing at around 306 metres, followed by One Canada Square and 110 Bishopsgate. 22 Bishopsgate, which is currently under construction, will surpass all but the Shard when completed. COMPLETED UNDER CONSTRUCTION PROPOSED 306M 294.6M 300M 278M 239M 240.5M 230M 236M 250M 221M 224M 214.5M 219.8M 204.9M 198.6M 199.5M 199.9M 201M 190M 192M 192.1M 200M 150M METRES (M) 100M 50M 225 MARSH WALL WOOD WHARF E3/E4 5254 LIME STREET ONE LANSDOWNE ROAD 8 CANADA SQUARE ONE NINE ELMS 25 CANADA SQUARE WOOD WHARF A1 1 PLAZA TOWER SOUTH QUAY NEWFOUNDLAND WHARF NQ1 CANARY THE LEADENHALL BUILDING 110 BISHOPGATE ONE CANADA SQUARE CITY PRIDE TOWER HERTSMERE HOUSE 22 BISHOPSGATE UNDERSHAFT NO.1 THE SHARD 4 Marsh MARSH REPORT July 2016 FIGURE 1 London’s tallest buildings, completed and planned Source: Skyscraper Center London’s skyline still lags behind global cities like New York, Dubai, and Hong Kong, largely due to London’s historic landscape, protection of landmarks, and building height regulations. However, new construction opportunities available to build higher than ever puts greater focus on the need to mitigate the associated risks as the UK plans its high-rise revolution.* * Note: Listed data for proposed or under construction buildings is based on information currently available. This data is subject to change until the building has been completed and does not include proposed buildings without confirmed height estimates. COMPLETED UNDER CONSTRUCTION PROPOSED 306M 294.6M 300M 278M 239M 240.5M 230M 236M 250M 221M 224M 214.5M 219.8M 204.9M 198.6M 199.5M 199.9M 201M 190M 192M 192.1M 200M 150M METRES (M) 100M 50M 225 MARSH WALL WOOD WHARF E3/E4 5254 LIME STREET ONE LANSDOWNE ROAD 8 CANADA SQUARE ONE NINE ELMS 25 CANADA SQUARE WOOD WHARF A1 1 PLAZA TOWER SOUTH QUAY NEWFOUNDLAND WHARF NQ1 CANARY THE LEADENHALL BUILDING 110 BISHOPGATE ONE CANADA SQUARE CITY PRIDE TOWER HERTSMERE HOUSE 22 BISHOPSGATE UNDERSHAFT NO.1 THE SHARD Sky-high Risk: The Impact of Increasing Tall Buildings in the UK 5 MARSH REPORT July 2016 ON THE RISE “London is in As the population of London continues to grow, the middle of a the capital has been gripped by a construction frenzy population which has seen a greater number of taller buildings being boom that planned and constructed. “London is in the middle of a population boom that shows no sign of slowing down, shows no sign and it’s important we look at a range of options to achieve of slowing both the housing and workspace need,” the former London Deputy Mayor of Planning, Edward Lister, down and it’s said earlier this year2. important we look at a range FIGURE 2 Number of towers completed in London 2005-2015 Source: Skyscraper Center of options to 11 achieve both the housing 9 and workspace 7 need.” EDWARD LISTER Number Completed 4 FORMER LONDON DEPUTY 3 3 MAYOR OF PLANNING. 2 1 1 0 0 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Meanwhile, the new Mayor of London, Sadiq Khan, has recognised that more housing is needed, and therefore more construction in the city, saying, “my single biggest priority will be to build thousands more homes every year.” This trend is predicted to continue over the next decade. This year’s pipeline has seen an increase of 119 tall buildings compared to 2014, bringing the current number of those proposed, approved, and under construction to 436, according to New London Architecture (see FIGURE 3). 6 Marsh MARSH REPORT July 2016 FIGURE 3 Comparison of London tall buildings pipeline 2014-2016 It is not just Source: New London Architecture the number of 500 these projects 400 that needs to be taken into 300 consideration, 200 but also the 100 fact that the height of the 0 2014 2015 2016 individual Proposed (pre- and post-formal submission) Refused (since last review) buildings Approved seems to be Under construction Completed Status unknown rising. A number of tall building projects built in the past five years. are also underway in other Many buildings that are planned metropolitan areas across the or under construction, such as the UK. For example, according to 62-storey project at 22 Bishopsgate in Skyscraper Center3, nine buildings London, are following the same trend. with more than 20 floors have been proposed or are under construction While the new builds provide in Manchester, while three new space for residents and offices, towers are planned in Birmingham. constructing upwards is not without considerable risk. Building a tall The risks are two-fold for property tower is complicated, heightens developers. It is not just the number many traditional construction risks, of these projects that needs to be and presents risks unique to these taken into consideration, but also the projects. Property developers need to fact that the height of the individual be aware of these risks linked with tall buildings seems to be rising. tower construction and take steps to For example, out of the top five mitigate losses that could occur. tallest towers in London, three were Sky-high Risk: The Impact of Increasing Tall Buildings in the UK 7 MARSH REPORT July 2016 HEIGHTENED RISK MITIGATION Developers The increasing number of tall in a combined loss in excess of need to towers has given rise to certain GBP150 million – a level where perils before, during, and after insurers were questioning properly construction. There are several whether the provision of risk and insurance challenges that insurance for construction sites consider developers and contractors need to could continue economically. consider and potentially transfer via insurance to remove unnecessary Robust risk management methods protecting risk from the balance sheet. and employing contractors with sound track records can ensure that their assets FIRE AND/OR ESCAPE these are controlled and mitigated. with adequate OF WATER TERRORISM The possibility of fire and/or the site safety and We have seen a number of recent escape of water represents significant examples of terrorist activity across risk to a project’s practical completion Europe from the bombings in Paris security. date. Either one of these events has in 2015 to the attacks in Brussels the potential to cause severe damage earlier this year. Construction sites to the works and significant delays. can be targeted by terrorists as a This risk is multiplied in a tall tower, method of slowing growth, and due to the high concentration of value therefore strong consideration in a single structure. needs to be given in respect of • Escape of water: Especially terrorism insurance to reinstate during the installation and testing the construction works in the event phase of bathrooms, washrooms, of a terrorist act. and sprinkler systems, this can Tall buildings also carry a cause substantial claims if leaks concentration risk, as they are go undetected, as water damage typically located in urban areas, can impact several floors of the meaning there is a greater risk of building and has the potential damage to property and injury to damage equipment, such as to people due to falling debris. generators and cables located Developers need to properly in basements. The Construction consider protecting their assets with Insurance Risk Engineers adequate site safety and security. Group (CIREG), in conjunction Post-construction, tall towers have with the UK Construction All proved to be targets for attacks in the Risks Underwriters Group, has past, such as the World Trade Center produced a best practice guide buildings on 11 September 2001.