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Hosts: Andrew Teacher

Andrew Teacher talks to the outgoing CEO of Helical, Gerald Kaye, on a life spent in property, the challenges facing the London real estate market, and what he plans to do post-Helical.

Gerald Kaye has devoted his life to the real estate sector. In March of this year, Gerald Kaye celebrated 30 years with Helical, but he admits that he had not imagined at the start of his career becoming one of real estate’s leading authorities on offices.

Kaye says his early choice of career was instead influenced by familial ties in land agency and a childhood connection to the countryside. Kaye envisaged being the custodian of a country estate: “I went to Reading University to study Estate Management but I realised soon into the course that I wasn’t going to make much money as a land agent.” Hence, Kaye took a specialism in commercial property and then cut his teeth as a graduate surveyor with Knight Frank and Rutley which remains, for Kaye: “one of the top firms.” Kaye specialised in the office market outside of Central London.

It was early work with property developers Peter and John Beckwith via Second London Wall that sparked Kaye’s interest in commercial development. Kaye says: “They would always react when you contacted them and look at a site you recommended.” Kaye enjoyed working with them so much so that he gave notice at Knight Frank and joined London & Edinburgh Trust, the newly rechristened Second London Wall, shortly then to IPO. Looking back, Kaye reflects that he was given remarkable independence and latitude to act from inception to completion on projects from the start: “it really was a case of going in at the deep end and after about a week I had to start to swim or sink.”

The 1980s represented a fascinating time for Kaye to be involved in real estate amid the Big Bang and deregulatory agenda under Thatcher, which caused a strong demand for new offices for merged investment banks, and the advent of large-scale development projects such as Broadgate and Canary Wharf. Kaye considers Canary Wharf fulfilled a useful function at the time by providing: “the very large offices for the mega investment banks who wanted a base in Europe and who could get the space they wanted at Canary Wharf without planning constraints.” For Kaye, the trade-off was that while City rents did not rise as fast as they might have done, Canary Wharf was additive and well-timed to cementing London’s role as a financial centre.

Changes in planning rules under Peter Wynne Rees as Chief Planning Officer in the late 1980s expanded the amount of space that could be built on sites in the City of London. As Kaye puts it: “Until that point, you could only build five times the amount of space on the site.” From that point on, Kaye considers, the quality of architecture improved as architects and developers were given greater freedom.

Kaye saw an expanded remit with London and Edinburgh Trust after it was taken over by a Swedish pension trust in April 1990. Kaye assumed the reins as CEO of a new head office in Brussels in March 1992, overseeing developments across France, Germany, Italy, and Spain. After 18 months he had begun to feel the need for a change.

It was an introduction to Mike Slade in 1994 that led to Kaye’s beginnings with Helical. Kaye was brought into Helical with a brief to, “do more development”. The timing was auspicious, since the beginnings of economic recovery in the early 1990s saw recovery in demand for City offices. Helical was well positioned to serve that demand since: “It was a much smaller business then and in those days we could forward-fund developments.” Within two weeks of starting, Kaye was working on 33 Old Broad Street with Barclays Bank and Scottish Amicable, building out 190,000 square feet of development, topping out in 1997. By the time the Halifax Building Society occupied the space, the project was delivered under budget and the rents had risen over the course of the development. Kaye went on to complete with Foster and Partners their first development in the square mile at 100 Wood Street.

Kaye’s pedigree makes him uniquely well-placed to observe on the current state of the office market. Kaye says: “It’s become a hackneyed phrase, but we are seeing good demand for best-in-class developments and major refurbishments. The market is weaker for poor quality space that, understandably, people do not want to occupy.” Yet Kaye observes there is also room at the smaller end since, “sub 10,000 square feet a lot of occupiers want fitted space because it saves them aggravation in having to fit it out themselves.” For Kaye, there is the appearance of established landlords behaving like flex providers and flex providers seeing to provide “enterprise offerings” to large corporates.

Kaye considers that the UK REIT regime has fared well in the 20 years since its introduction, but as he puts it: “What we haven’t seen is scale.” Whereas the likes of Landsec and British Land were among the larger REITs across the world at the time of the inception of the regime, they have largely been overtaken. Without commensurate scale, Kaye fears that the UK REIT sector might not seem so appealing to international investors.

Kaye considers, too, that the UK may need to become accustomed once more to a higher interest rates environment, compared to the, “extraordinary period from 2009 – 2022 when interest rates were below 1 per cent.” Kaye considers that interest rates will likely nudge down before the end of the year, stimulating the investment market, alongside rental growth, but that rates of 4 – 5 per cent are the new normal.

Kaye points to a further and significant challenge that faces real estate: the capital expenditure required to meet climate resilience in Central London buildings. Kaye says: “Around 80 per cent of buildings in Central London are rated C or below on the energy performance certificate, which represents a lot of money to spend on the building stock and a challenge to decant occupiers while works are completed.” For Kaye, the direction of travel may be correct but, “the Government has been trying to force the pace too quickly and it will take longer to achieve.”

In mid-July 2024, Kaye will step down from his role as CEO and board member, but he will not be leaving real estate totally behind him; he will retain a consultancy arrangement with Helical. His ongoing role will primarily concern: “projects which are on-site, and which are due to be finished in March 2026.” The new role will leave him free to bring his considerable experience to bear in the wider real estate market. As the market gets to grips with some of the challenges and opportunities he has pointed to, his expertise is sure to be in demand.

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