Office developer Helical has sold the London headquarters of social media company TikTok for close to £160mn, in a deal that signals there is still demand for high-end offices even as the rest of the market falters.
Helical has sold the nearly 90,000-sq ft block, which sits above the new Elizabeth Line station in Farringdon, to Hong Kong developer Chinachem Group.
The £158.5mn sale is a boost for the London market after a record tally of office deals in the first three months of the year has stalled in recent weeks, as investors are deterred by rising interest rates and inflation.
“It does show that there is a bifurcation in the market between the best assets and the rest,” said Gerald Kaye, Helical’s chief executive
“New, highly sustainable buildings that are well located and have good amenities for tenants are attractive to investors. Those buildings will grow in value and brown buildings — those which are less sustainable — their values will fall,” he added.
TikTok’s parent ByteDance signed a 15-year lease with Helical to take the entirety of the Farringdon block, named the Kaleidoscope, in March 2021. The company agreed to pay £86 per square foot, equating to £7.6mn a year in rent, in a deal that was seen as a show of confidence in London’s office market in the midst of the pandemic.
The building’s sale, for a net initial yield of 4.25 per cent, will similarly boost confidence among developers and estate agents that high quality offices with long leases will continue to attract investors, despite the increasingly ominous picture in the wider economy.
“It’s a good price, and shows there is some resilience in pricing for prime new buildings,” said James Beckham, head of central London investment at estate agent CBRE.
But the sale is a rare bright spot in a difficult market. Beckham estimates that £6bn was spent on London offices in the first quarter of the year. That halved in the second quarter and could fall as low as £1bn in the current quarter, he said.
“The market’s obviously slowed down considerably [because of] the stand-off between buyers and sellers. There’s been a whole range of assets withdrawn from the market. The spread [in price expectations] has been 10-15 per cent between buyers and sellers,” he said.
A number of offices have been withdrawn from the market recently, including MidCity Place, a large office in Holborn owned by Canadian investor Oxford Properties and Singaporean state-owned fund Temasek.