Imagine you are the founder of the latest, cutting-edge tech startup.
Perhaps you’ve been backed by a private equity firm, or an angel investor. You might have even got a good old-fashioned bank loan. Either way, you’ve graduated out of your parent’s basement and are on the hunt for an office you can call home. The question is, where?
The obvious answer, of course, is the achingly cool East London fringe. The area between Shoreditch and Old Street; Silicon Roundabout and Tech City. As a startup you may decide to take co-working, shared office, accelerator or incubator space, which offer flexible leases and a community spirit. Perhaps, if the rents proved to be too steep, you would look slightly further out – Haggerston, Hoxton, Dalston or even as far as Stratford.
However, once you move beyond the startup phase, and have a stable income, you might begin looking to scale-up and expand. And when this happens, your outlook will change.
Those tech companies that are scaling up often grow beyond their Shoreditch roots. At the end of last year, Deliveroo opened new offices on Cannon Street and P2P lender RateSetter now calls Bishopsgate home. Over the last few years, prime rents in Shoreditch have more than doubled and are now higher than those in the City. In April, the business rates revaluation will further increase occupational costs significantly. However, rising costs only partly explain the movement of the techies.
The fact is that, as tech startups grow in confidence and size, and transform into more mature businesses, they gravitate to corporate locations, aping the financiers and lawyers that have traditionally called the City home.
Businesses worth millions of pounds need more than just a few code writers to run smoothly. They need in-house lawyers, communications experts and accountants. Not only do they need to be able to attract the right seniority of staff in these fields, they need offices with the specifications and amenities capable of housing them. Shoreditch, with its converted warehouses and crowded Victorian streets, has few buildings that can offer the quality of space required. The City, with its high level of base build specification, supply pipeline, and selection of restaurants and shops, is well positioned to attract an entirely new audience.
Moreover, the type of work these firms are doing, as well as their client list, is slowly changing. Technology is proving a disruptor to even the most traditional of industries, and the techies are working ever more closely with existing City firms. So they’re moving closer to their clients, and becoming the neighbours of new partners.
For their employees, the City also offers quick transport to a wider range of areas. Crossrail’s arrival in Liverpool Street is a major draw. Somewhat surprisingly, internet speeds in Shoreditch are notoriously bad, power is an increasing issue, and the City offers welcome relief for firms frustrated with this.
This trend is likely to continue, and as maturing tech companies branch out into the City, more will certainly follow.
The cultural impact of a new tech cluster will be hard to miss. As banks and law firms themselves become more technology-driven businesses, we will no doubt see some merging of the office lifestyles, perhaps even a relaxation of the suited and booted dress code. After all, shorts and flip-flops will seem like a much better idea the next time the Central Line hits 30 degrees celsius!
Tom Duncan is associate director at JLL.