Why London’s digital core is hitting its prime
London’s digital homelands around Shoreditch, Aldgate and Clerkenwell have become coveted postcodes for the start-ups and big businesses in the creative and tech industries.
London’s digital cluster has changed almost beyond recognition over the past few years as companies compete for a postcode in one of the capital’s hottest areas.
Once a breeding ground for start-ups in the creative and digital media industries, the cluster of Shoreditch, Clerkenwell and Aldgate is drawing in major corporations like Amazon, which recently unveiled its new 650,000 square foot London HQ at Principal Place. Overall take-up in the area has doubled in just three years, according to research by JLL.
“In the last few years the character of London’s digital cluster has changed radically,” says Jon Neale, Head of UK Research at JLL. “It used to be about content, with companies focusing on digital media, social media and graphic design, but the letting profile is now a lot broader with more fast-growing firms developing tech-based products and services for a variety of business sectors. They have the venture capital funding and margins to be able to afford the rising rents.”
Prime rents in the area have risen by more than 40 percent over the past three years to around £70 per square foot, putting it on a par with the City. Over the same period, there has been a 30-fold increase in lettings from ‘harder’ tech companies – those that develop new applications or software.
Yet some creative and digital media start-ups, such as Fashion app Grabble and music ticketing service Dice, still believe it’s a price worth paying. Neale says many creative tech firms want to remain around Shoreditch because it’s easier to recruit and retain the talent they need to stay ahead in a competitive digital marketplace. And with more well-paid tech employees in the area, fashionable retailers and hospitality brands are flocking to line its streets; Shoreditch’s Redchurch Street has become home to international fashion brands like J Crew and Versus, while acclaimed restaurants such as Lyle’s have opened up nearby.
And as the area becomes more coveted, some digital start-ups accept rising rents and look for alternative workplace solutions amid concerns that having a postcode outside of the cluster would damage their reputation with clients.
“The area is so beneficial to business that some companies have decided if they can’t afford the rent they will occupy less space and get more employees to work from home,” says Neale. “Other companies are opting for new forms of working such as co-working. We’ve seen the amount of flexible space in the area increase tenfold over the past three years.”
Moving further afield
For other firms, particularly in the creative advertising industry, the time has come to move outside the city’s traditional digital core to places like Hackney, Whitechapel and, to a lesser extent, South London. Take-up in these areas has increased by more than 50 percent in recent years, driven by flexible space providers and businesses in the creative sector.
Whitechapel in particular is set to benefit from Crossrail when its new station opens in December 2018, making it an attractive alternative for companies looking for a cheaper yet accessible location.
Meanwhile, some of Shoreditch’s Fintech firms increasingly view the City as a viable alternative.
“Rents in the City have become a bit cheaper because there is a lack of demand for office space from financial services corporations. Creative companies are generally against moving to the City because of their fear of suits, but Fintechs don’t share this fear and there’s a sense that the City’s amenities are improving,” says Neale.
High demand means the capital’s digital turf is still very attractive to developers and investors. Investment volumes have risen from £504 million to £1.7 billion in just four years and land ownership has moved from private hands to large institutions and real estate investment trusts.
Neale says a key challenge for the area will be encouraging investment from the Far East.
“Although the digital cluster is recognised as prime in the UK and Europe, investors in Asia tend to target large, eye-catching glass skyscrapers in the City. Shoreditch is grubby and edgy so that has put them off, even though the fundamentals are better,” Neale adds.
Indeed, as companies continue to snap up space around in London’s digital heartlands, rents are on an upward trajectory, so much so that by 2019, prime rents in Shoreditch and Clerkenwell will be ahead of the City core. For digital London, the start-up scene is proving to be big business.