How the tech revolution is changing UK real estate

The UK has digital talent – and across the country young and fast-growing tech companies are influencing the cultures and real estate choices ...

May 18, 2017

The UK has digital talent – and across the country young and fast-growing tech companies are influencing the cultures and real estate choices of more traditional sectors.

As the digital economy flourishes, technology companies from start-ups to established heavyweights are clustering in key locations. “Companies in tech clusters benefit from an ecosystem of creative talent and specialized support for their business,” says Tom Duncan, Associate Director of UK Corporate Research at JLL.

Edinburgh, for example, has developed a scene for financial tech and ecommerce; gaming and apps are big in Bristol and Bath; and the up-and-coming cluster of Cardiff and Swansea is making its name in cybersecurity, apps and software.

While the East London tech powerhouse of Aldgate, Clerkenwell and Shoreditch shows no signs of cooling down, nearly 70 percent of investment in the UK tech sector is now pouring into the regional clusters.

Creating creative neighborhoods

A combination of government support and financial incentives are attracting digital businesses to key hubs. “Local governments are getting more involved, working with businesses and property owners to create dynamic areas within cities where start-ups go,” says MB Christie, Chief Operating Officer at Tech City UK. “These are fast-growth businesses in specialized fields, able to build digital products that serve millions of customers across the globe within five to six years.”

Birmingham, named one of the top three UK smart cities, has a rich tech sector fueled by digital marketing, online gambling and telecoms. Start-up hub The Custard Factory is one of four in the city catering specifically for creative and digital businesses, while so-called “scale-up” areas such as the Jewellery Quarter draw young companies in the process of expansion.

In Manchester, home to the likes of Moneysupermarket and Google, research by Tech City UK in partnership with JLL, found that tech companies with particular specialisms are grouping together in niche neighborhoods.

Indeed, large and small companies are reaping the results of being around the right neighbors – in London, supermarket giant Tesco’s digital team works out of an office in tech center Shoreditch, while in Reading and Bracknell, startup hubs such as Grow@GreenPark focus on creating a sense of community.

Having the right real estate is also critical to drive collaboration, says Duncan. Property developments slated for completion in the next year aim for just that. For example, the University of Leeds’ Nexus will be a six-storey center for local technology and creative companies with research facilities, year-round programs for collaboration, and an incubator for high-growth tech businesses.

Flexible offices, flexible working

In Edinburgh’s rapidly growing tech scene, small businesses have brokered 90 percent of recent tech office leases, driving demand for space that can flexibly accommodate smaller teams – and cater for tech-specific demands.

It’s having an impact on office design. Landlords are stripping back buildings to create the industrial aesthetic often favored by tech companies, such as exposed brickwork, communal spaces, and flexible areas that help growing companies use limited space more efficiently.

Flexibility is often a key requirement of up and coming tech companies. Since its first coworking space opened, Bristol’s tech scene has exploded beyond its initial few gaming and app start-ups. Soon to be the site of a new start-up incubator run by U.S. cloud giant Oracle, the UK home of Amazon, HP and JustEat also has a thriving coworking scene that encourages start-ups and young companies.

Similarly, the 98 percent of London tech companies that are start-ups benefit from the city’s proliferation of coworking spaces – and the energy of these businesses has led established corporations to follow the trend.

“The coworking trend has been pioneered by demand from the tech and start-up sector, which has created a more flexible approach to real estate,” Duncan says.

In London, tech firms are moving into prime, city center office space which has traditionally been the other industries, requiring mainstream office buildings to adapt to the tastes of their new occupiers. “One challenge for landlords is to manage the expectation for flexible leasing that tech occupiers require, as they must often scale up very quickly,” Duncan says.

The need for tech talent

The UK digital sector is creating jobs twice as fast as any other according to Tech City UK, creating highly skilled and well-paid roles. Yet as political changes herald an era of uncertainty for businesses in the UK, there are obstacles to the growth of its bustling tech economy.

“Talent by far is the greatest challenge right now,” Christie says. The cosmopolitan nature of UK cities has meant a ready supply of multilingual, multicultural workers, without the need for overseas offices. “With Brexit on the horizon we are already seeing constriction of the pipeline of tech talent going in – not just developers, but sales and marketing people,” she adds.

As lawmakers focus attention and budgets on technology, digital companies – and their cultures – will exert even greater impact on real estate.

“Office buildings will evolve with an emphasis on providing a great experience for employees. Buildings will need to work harder to encourage location-flexible employees to come in, for example, by offering fitness centers or amenity such as cafes,” Duncan says.

Traditional companies from banks to supermarkets are expanding their digital services – and in the case of many media companies, switching to entirely digital offerings. “Technology increases productivity. It is the future and the growth engine,” Christie says.

“Within the next decade, technology will permeate every industry,” Duncan adds. For the vast majority of companies, survival – and success – will depend on their technology; this means that real estate is in for a rapid rate of change as well.