London is the most expensive place in the world to locate a startup, with the average cost of renting office space in Shoreditch outstripping that of San Francisco, Brooklyn and 19 other tech and creative hubs around the globe, putting at risk the city's potential of producing its very own Google.
The cost of renting business space in the hub of Silicon Roundabout comes in at $66,706 (£50,374) per year, six per cent higher than the next most expensive startup hub of Brooklyn, based on the cost of leasing and fitting-out a 600 sq ft office.
However, startups are getting more bang for their buck by choosing to locate their businesses in co-working spaces.
London is only the third most expensive tech hub to rent shared spaces at $28,933 per year, cheaper than Hong Kong and Dublin, while startups switching from a solo office to a shared space stand to make the greatest savings in the capital – $37,773 per year, according to the research from Knight Frank's 2017 Global Cities Report.
“This study illustrates that co-working has an important role to play in supporting the next generation of innovative tech companies early in their life cycle," said Knight Frank tech partner James Nicholson.
"These businesses are highly mobile, and mature markets such as Shoreditch and Brooklyn – having worked so hard to cultivate tech clusters – risk being overtaken by other locations if they cannot provide affordable workspace.”
Chief economist at the firm, James Roberts, warned that rising rental costs risked preventing the capital producing an internationally successful tech firm on the scale of the Silicon Valley giants, however.
“Collaborative offices are consequently playing a vital role in offering affordable business space, but for startups to move to stage two as companies, they will ultimately need their own offices. London needs to be more affordable for tech firms if it wants a home-grown Google or Twitter," he said.
“As we head towards Brexit, tech startups are the sort of firms the UK will be looking to for future growth, so it is disappointing to discover London is such an expensive place for them to rent business space, at least if they want their own offices."
Office rents in tech hotspots are set to soar, however, with the property consultancy predicting double digit growth among the emerging tech hubs such as Sydney, Austin and Madrid, while growth in established locations will be "less pronounced".
“Three years ago London, New York and San Francisco were leading the tech charge but now we are seeing a new wave moving into pole position such as Berlin, Austin and Madrid. These cities are able to attract and retain ‘the iPhone generation’, which have an adaptive, free-thinking mindset and are invaluable to tech and creative businesses," said Roberts.
Rental growth in London is forecast to come in at 7.1 per cent by the end of 2019, while the markets in Sydney, Berlin, Austin and Madrid are all predicted to grow by more than 20 per cent in the same time.