Helical’s Kaye on dragging deals, vacancies and the future of flex

Helical chief executive Gerald Kaye says his team is bullish about the outlook for the company’s London office portfolio, even in the face of a rising vacancy rate and lost rent. The company revealed its vacancy rate has increased across its portfolio to 18.5% in interim results published today. That figure has risen from 16.1% in March and is set to increase to 25% after the expiry of the REIT’s licence arrangement with troubled flexible office operator WeWork at the Bower, EC1, and the departure of Baker McKenzie from 100 New Bridge Street, EC4. Those two leases, both due to wrap up before the end of this year, account for almost 30% of the company’s £81.6m rent roll. The company is on the hunt for new occupiers at the Bower when WeWork ends its tenancy. At the start of November, the REIT confirmed it had forfeited individual leases for six floors to WeWork following rental arrears for the September quarter. After WeWork paid back the money it owed, plus service charges, the company reoccupied the building but only on a short-term licence agreement with the landlord that ends next month. “WeWork was the only flex operator across our portfolio,” Kaye told EG. “We have tended to prefer to let directly to occupiers.” But this has not deterred the company from considering future deals with other flex providers for the space. “There are three buildings at the Bower and it’s about 320,000 sq ft, so we feel there is a place for flex operator there,” he added. “What we’re going to do is we’ll let some of the floors on the normal basis with a bit of it to flex.” Promising outlook Kaye and colleagues are upbeat about prospects in the leasing market, recording 10,381 sq ft of deals across five new lettings during the half-year that delivered rent of £576,803, in line with March ERVs. Some occupiers are extending their leases and space, including existing tenant Verkada, a security company that has signed for another 10 years at the Bower and an extra floor. But most of the recuperation will come from new occupiers, Kaye said. Since the half-year end, Helical has secured record leasing deals, including letting floor 9 of the JJ Mack Building, EC1, to Corio Generation at a 2.3% premium to March ERV, as revealed by EG in October. It also confirmed another major deal is in the pipeline, with a further three floors at the City fringe office block totalling 68,000 sq ft under offer to one unnamed tenant. In October, EG revealed that Sainsbury’s is nearing a deal to move to its London headquarters from Tishman Speyer’s 33 Holborn, EC1, to JJ Mack, with the supermarket group set to take around 70,000 sq ft across three floors. As supply continues to be constrained for best-in-class space and demand still outperforms that for older, less well-positioned stock, Kaye said the company is seeing tenants compete for buildings that are of the highest specification in the best locations. This has led the company to remain confident that strong lettings and a well-positioned development pipeline will soon pay dividends. “We’re beginning to see a bit more impetus in the market,” said Kaye. “Because the demand is so focused on the best-in-class end of the market, we are now seeing tenants competing for buildings and some tenants are losing out, so they’re having to go to the next choice.” As a result, the problem of dragging deal times appears to be rectifying itself according to Kaye, who noted that when it comes to office leasing deals it is first come, first served. “The agents that are advising these occupiers are realising that if they drag their feet too much, then somebody else might come in and take the space and that may be a problem,” he said. To send feedback, e-mail chante.bohitige@eg.co.uk or tweet @bohitige or @EGPropertyNews