Prime Central London Office Demand And PBSA Undersupply Will Drive Long-Term Upside

Catalysts

About Helical

Helical is a Central London focused developer and asset manager delivering best in class offices and living led schemes through capital light, partnership based structures.

What are the underlying business or industry changes driving this perspective?

• Rising demand for highly sustainable, well connected, amenity rich Central London offices alongside a severely constrained new build pipeline is expected to support materially higher headline and effective rents across Helical’s schemes, driving revenue growth and valuation gains.
• Structurally higher construction and finance costs, combined with retrofit first planning delays, are limiting competing supply. This allows well capitalised developers such as Helical to lock in stronger letting terms on delivery and expand development margins and earnings.
• The persistent shift by occupiers towards premium space near major transport hubs, including technology and AI led businesses seeking expansion, positions assets such as The Bower and Paddington to capture outsized leasing demand. This trend may support improving occupancy, rental income and net operating margins.
• Growing institutional appetite for prime London offices and income backed PBSA, supported by an improving interest rate backdrop, should deepen exit liquidity for forward sales and stabilised assets. This could accelerate capital recycling, crystallise development profits and enhance return on equity.
• Structural undersupply of high quality, well located PBSA near leading universities, including Imperial College’s White City and North Acton locations, creates attractive forward funding opportunities that can replicate Southwark level equity multiples and materially uplift earnings and net asset value.

Assumptions

How have these above catalysts been quantified?

• Analysts are assuming Helical's revenue will decrease by 4.3% annually over the next 3 years.
• Analysts assume that profit margins will increase from 80.5% today to 175.2% in 3 years time.
• Analysts expect earnings to reach £47.9 million (and earnings per share of £0.43) by about December 2028, up from £25.1 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting £64.6 million in earnings, and the most bearish expecting £29.6 million.
• In order for the above numbers to justify the price target of the analysts, the company would need to trade at a PE ratio of 8.3x on those 2028 earnings, down from 9.4x today. This future PE is lower than the current PE for the GB Office REITs industry at 9.2x.
• Analysts expect the number of shares outstanding to decline by 0.77% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 9.02%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

• The strategy is heavily reliant on a prolonged window of supply constraint in prime Central London. If more developers than expected overcome retrofit first planning delays, or if distress-driven schemes come to market, the resulting increase in Grade A supply could cap rental growth and compress development margins, reducing revenue and earnings.
• Forward-funded and equity-light structures can amplify returns when capital values hold up. However, a shift in institutional appetite for London offices or PBSA, perhaps due to higher-for-longer interest rates or a reversal in base rate expectations, could weaken exit yields, erode valuation gains and cut into net asset value growth and future earnings.
• The development pipeline is concentrated in a small number of large schemes in 2026 to 2029. Any construction overruns, cost inflation above tender assumptions or delays in practical completion and pre-lettings would defer profit recognition and could compress profitability, weighing on net margins and near-term earnings.
• The narrative assumes continued strong occupier demand from tech and AI-led businesses and professional services for best-in-class space near transport hubs. If AI efficiencies, remote working trends or a cyclical downturn reduce space requirements, letting velocity and achieved rents at schemes such as Paddington, 10 King William Street and The Bower could disappoint, pressuring rental income and development profits.
• PBSA opportunities around White City, North Acton and other locations are framed as highly attractive. Sector-specific regulatory changes, planning challenges or a slowdown in international student growth could undermine forecast occupancy, limit rental uplifts and lower the equity multiples expected from Southwark-style structures, reducing revenue growth and returns on equity.

Valuation

How have all the factors above been brought together to estimate a fair value?

• The analysts have a consensus price target of £2.58 for Helical based on their expectations of its future earnings growth, profit margins and other risk factors.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of £3.0, and the most bearish reporting a price target of just £1.83.
  
• In order for you to agree with the analysts, you'd need to believe that by 2028, revenues will be £27.3 million, earnings will come to £47.9 million, and it would be trading on a PE ratio of 8.3x, assuming you use a discount rate of 9.0%.
  
• Given the current share price of £1.92, the analyst price target of £2.58 is 25.6% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.