In our judgement, the London commercial property market currently provides the best source of potential capital profits and we expect this to remain the case for the foreseeable future, notwithstanding the risks associated with our exit from the European Union and other potential headwinds.
In order for Helical to generate capital profits the Company needs to identify those areas where it believes tenant demand is, or will become, strong and to source opportunities in those areas at an appropriate entry price. Using the skills, knowledge and expertise gained over many years, the Helical team aims to deliver attractive and exciting office space, in locations with growing tenant demand.
The Company has recognised three continuing major developments in the London office market. First, the growth of the London population, which exceeded its previous peak during 2015. Second, the continuing and rapid expansion of the creative industries, predominantly in technology and media. Third, the migration of occupiers from the West End to the City and East London.
London’s population reached 8.7 million in 2015, exceeding its previous peak in 1939, and is forecast to continue growing towards 10 million by 2030. Whilst this growth will present challenges to London, particularly in terms of its infrastructure, the opening of the Elizabeth Line (Crossrail) at the end of 2018 will assist in alleviating these problems. Our properties in the City and Tech Belt are all in locations that will benefit from this rail link.
Recently published research by CBRE noted that the UK is a global leader in the creative industries and we have targeted these industries with our portfolio. In London, companies involved in media, advertising and marketing, technology and other creative industries comprised 54% of our new lettings in the year to 31 March 2017.
The third factor influencing our choice of location for our portfolio is the migration of occupiers across central London to the City and East London. The desire to be part of creative hubs, surrounded by like-minded individuals, located a short travelling distance from home is a common theme in discussing requirements with tenants. Most obviously, those hubs are in the Tech Belt from Kings Cross to Whitechapel.
In London, Helical is building up a portfolio of multi-tenanted office buildings in the Tech Belt locations of Farringdon, the Old Street roundabout and Whitechapel and also in West London from Chiswick to Shepherd’s Bush. By owning these “clusters” or “villages” of office buildings it has a portfolio of assets with multiple lease events leading to ongoing asset management opportunities.
The Company also seeks to expand its profitability by taking on additional schemes in Central London either by co-investment or by forward selling/funding them, to allow for the generation of profit shares and development management fees but with reduced balance sheet exposure.