How tech is taking over London office leasing
As more tech firms settle and expand in London, they’re transforming the city’s traditional office leasing dynamics.
As London’s tech sector continues to grow both in size and prominence, it’s increasingly rivalling the capital’s long established financial services sector when it comes to employing top talent and leasing quality office space.
Such is the rise of the sector, the total numbers employed in tech is predicted to outstrip those working in the UK capital’s banking and financial services, over the next 12 months, according to Oxford Economics. In 2018, 46 percent of new jobs created in London were in tech, compared with 17 percent in finance. And more people equates to greater space requirements.
“We have not seen much evidence of the impact of Brexit yet for occupiers in London. The leasing market has been generally robust overall. London’s tech sector has been the engine of the capital’s leasing market in recent years and we have recently seen some large global tech companies like Facebook taking significant space,” says Elaine Rossall, Head of JLL’s UK Offices Research.
“However, leasing demand is likely to slow in the early part of the year, as occupiers pause to access the implications of Brexit. Employment in banking and financial services is likely to see some tapering from today’s level, and this may well be reflected in leasing patterns,” she adds.
Leading the tech crowd
London remains Europe’s top destination for tech investment with areas such as Big Data, AI and blockchain seeing record funding in 2018. But that’s not say there aren’t any competitors for its tech-savvy crown: London saw £1.8 billion of growth funding last year, but Berlin and Paris are narrowing the gap, with £936 million and £797 million invested, respectively.
Owen King, corporate research director at JLL UK, says that while the long-term impact of Brexit on the sector remains uncertain, London’s ability to continue to attract the talent it needs as the sector grows will be more important than ever.
“We simply do not have enough people in the UK with the technical skills that the sector needs to continue its momentum,” he says. “There seems to be a political consensus around the continued need for skilled immigration after Brexit – but everybody is just waiting to see what happens.”
At present, London has the biggest concentration of software developers in Europe, with more than 357,900 specialists in the city, according to Stack Overflow, helping to draw in many of the global tech giants.
Grade A space in high demand
Despite the uncertainty, space in London’s Grade A offices is set to remain in high demand in 2019, with supply at its lowest level since 2016 and pre-letting at a record high. Rossall notes: “Many submarkets will be increasingly constrained, and a limited speculative pipeline will maintain low vacancy levels, as a result, pre-letting will continue to be a key characteristic of the leasing market.”
She says occupiers are increasingly footloose – especially global tech firms who desire flexible, campus spaces that can accommodate growth – so, while areas like Shoreditch remain popular, other parts of Central London are equally attractive. “Many of these tech companies have grown rapidly and are obviously looking for the best talent and want to create workspaces that will attract and retain this talent,” she says.
“Companies want well-designed interiors, amenities and to create desirable communities where people can meet-up after work,” she says.
When Facebook acquired 611,000 square feet of office space across three buildings at King’s Cross, it cited the area’s transport links, vibrant community and space for expansion as key drivers behind the move.
Meanwhile, Google has also taken space at King’s Cross while Amazon settled into its new 15-storey, 600,000 square foot home located between the City and Shoreditch in 2017. Apple is set to open a new London HQ in 2020 in Battersea for 1,400 staff.
The Shoreditch real estate market has blossomed around the growth of the tech sector over the last decade, proving especially popular with start-ups. Tech Hub, Europe’s longest running start-up support organisation, recently announced plans for a £2.2 million investment in a new Shoreditch HQ, reaffirming its commitment to the area.
“London’s tech sector remains the largest in Europe by a wide margin,” says King. “We’re still only in the early stages of adoption of technologies like machine learning and fintech – so I think there is enormous potential for the sector to continue to grow in London.”