Where on earth have the tech companies gone?

COMMENT In 2010, David Cameron stood in the then unloved, neglected dustheap that was Old Street roundabout, EC1, and made a pledge that the district would become “Silicon Roundabout”, London’s equivalent to Silicon Valley. Everyone thought this was just government spin, but fast-forward to February 2020 and the district was brimming with some of the largest, coolest and fastest-growing businesses, not just from the UK, but all around the globe. It had also fuelled billions of pounds of investment into its real estate, infrastructure and transport. Today it’s something of a different picture. The area is experiencing higher than normal levels of supply, with demand somewhat short of this. Now, let’s get a few things straight. Tech is not just relevant for the City fringe district, it’s important for London and the UK as a whole. To be absolutely clear, it’s not as if there is zero demand for tech at the moment, it is just operating at a significantly lower velocity to what we have become accustomed to over the past decade. Remote control There are a few issues. First, working-from-home attitudes seem more prevalent in this sector compared with others. Perhaps this is due to the age demographic within the industry, or perhaps it’s because many think their jobs can be carried out remotely without the need for being present in the office. I shall resist opening a can of worms here with my WFH views and will save this for another day (or check out my LinkedIn profile). Although we have seen almost all major tech companies reverse their mid-pandemic knee-jerk message of “everyone has choice where they work” to a mandated three days a week minimum, there is still a fair amount of indecisive behaviour towards how much physical space occupiers need in this new world order. Let’s look at some high-level metrics: If a company has 200 employees, they probably need about 20,000 sq ft, which is likely to be circa £100 per sq ft in premises costs. This is a £2m per year commitment and a £20m commitment assuming they sign a 10-year lease. If I was the chief executive or a board member of one of these companies, I would probably struggle to sanction an office move if I didn’t have at least two years of data to support the frequency of my employees coming to the office. I may have 200 staff, but if only 100 are in at a time, why would I commit to such a large office if I may not need it? Next, tech has been a huge growth area of the global economy, supported by huge valuations, often for companies making huge losses. Now, money is more expensive and investors are more cautious. They seem less willing to pile huge amounts of cash into a loss-making business, and in the scenarios where they are, the quantum of investment seems to have dropped. To compound matters, the cost of the money being raised is costing tech businesses more and, as a result of less investment and more expensive money, they are naturally being more cautious on how this is spent – offices being one of the areas being trimmed. Other factors affecting sentiment include Silicon Valley Bank becoming insolvent over the course of a weekend earlier this year which, together with large swathes of redundancies in the sector, has understandably affected confidence and sentiment. Finally, there is the economy as a whole. It’s tough out there, not just for tech but across the board. AI’s aspirations From our findings and talking to senior people within the tech world, these are the main hurdles that mean tech companies are more sluggish compared with other industries in their re-entry to the market following the pandemic. But while the above may paint a pretty negative picture, it’s not all bad news. This year has, in fact, seen a marked increase in demand of scale from the sector compared with 2021 and 2022. Not only that but the smaller end of the market, sub-10,000 sq ft, has truly reactivated and our business at Compton is experiencing pre-Covid levels of activity and demand. Furthermore, the explosion of artificial intelligence is very exciting, and we believe it is going to be a major growth part of the sector, which inevitably will generate lots of new demand for office space. Tech is not dead, far from it. But a bit like the property investment market at the moment, it is just trying to find its feet again given the challenging landscape it’s been forced to navigate. And it could also be a lot worse: we could be in New York or San Francisco, which I think it’s safe to say make the London market look somewhat booming. Shaun Simons is a founder at Compton Photo © Compton