If nothing is done to tackle the capital’s surging property prices, the future looks bleak for London’s small businesses.
Today’s Federation of Small Businesses (FSB) “London Manifesto” revealed that over half of the 7,000 London-based small businesses it surveyed said that business property costs require urgent reform. This comes as no surprise, seeing as firms can now expect to pay an average of £55.34 per square foot for office space, an increase of over 7 per cent from peak 2014 figures.
Most worryingly, if this call to action is ignored, London’s thriving tech sector will take a major blow. It has already suffered from rising rents, as developers move into East London, where affordable space had previously encouraged tech start-ups to set up shop.
Start-ups whose ambition exceeds their tangible assets continue to struggle with the demands of landlords who put a premium on strong covenants and stable tenants. Scale-ups who have outgrown shared workspace accommodation can also feel the pinch of being forced to invest in their first leasehold, while those with exponential head count growth face the challenge of balancing office space and company scale.
A recent Tech London Advocates survey highlighted the negative impact of the surge in prices for SMEs working within the tech sector. The majority of those surveyed believed that office space in London would not meet the growing needs of the tech community over the next five years. Alarmingly, over a quarter said they had considered relocating their office outside of London as a result.
This insecurity threatens London’s status as the tech capital of Europe. Small businesses will begin to look elsewhere for a more cost-effective home.
Tech start-ups could consider opting for shared workspaces or a hot-desking approach to reduce the number of physical desks required. However, these are not long-term solutions. As such, the FSB’s call for the next Mayor to work towards reducing the capital’s property prices is welcome.
If we fail to tackle the property price barrier, the loss of London’s position as a global technology capital will prove devastating for the country as a whole. For the third year running investment in London’s tech sector has outperformed the rest of the UK’s tech investment total, with £1bn being pumped into the capital this year alone.
Therefore, London must keep its global reputation as an innovative hub for small business - not only to start, but also to stay.