Silicon Roundabout is dying. Meet London’s new tech hotspots

Rising rents and multinationals are squeezing out the start-ups that made EC1 what it was. So where’s next?

Whether you call it Silicon Roundabout, Tech City or plain old Shoreditch, the EC1 area has earned many monikers for being the mecca of tech start-ups in the capital.

The Mind Candies and TweetDecks brought the ping-pong and hoodie culture, making this previously hippy area hip. What followed was a torrent of tech companies such as Facebook, Google, Intel, and the prime minister’s £50m pat on the back for being the UK’s answer to Silicon Valley.

But the Trojan horse for Tech City is its soaring rents and costly talent. A report by research firm GfK into Tech City found that businesses had ‘mixed feelings’ about the area, and costs are pushing out start-ups out the area. Rents in the area can go up to £40 per sq ft, and a single desk can be as much as £400 a month.

“For start-ups, the first consideration is: ‘Can we afford the space?’ So they tend to choose fringe areas,” says Matt Oakley, head of commercial research at Savills. “Start-ups tend to colonise the cheap areas and make them fun, funky and trendy, and then the rather boring corporates think: ‘We want a bit of that,’ and they move in. Result? Rents go up.”

Oakley has heard from a lot from venture capitalists who love investing in start-ups but are discouraged by a big slug of their money going on a deposit for office space.

“The investor thinks: ‘I don’t want to spend my investment on boring stuff. I want my money to be spent on the product they are developing.’ I expect London will see a lot of tech clusters evolving where the costs are lower, the lease is much more flexible,” he says.

So where next for London tech start-ups? We take a look at the new tech clusters coming up in the capital.

Croydon Tech City

Rent: £15-20 per sq ft (monthly)

Believe it or not, Croydon already has a hot tech scene. In fact, it boasts 325 tech businesses. Long-term residents include email service provider dotMailer and games developer Hotgen, which has produced games for global brands like Star Wars and Namco Pac-Man.

Last year, a few Croydon-ers thought that it was about time that the area had its own tech hub. They launched Croydon Tech City. Based in Matthews Yard, the initiative has now become a 400-strong community of software developers, VCs and tech start-up founders.

The rents compared to Shoreditch are, well, dirt cheap. Spaces next to East Croydon station are quoted for little as £19.50 per sq ft or less. And if you’re lucky, you can get a great bargain. A high-quality letting within two minutes of the station recently went for £6.50 per sq ft.

“People don’t just come here because space is cheap and dirty, they come here because they find high-quality spaces,” says Jonny Rose, founder, Croydon Tech City.

“The other attractive factor is transport links - we’re only 14 minutes away from London Bridge and London Victoria, and have direct rail links to Gatwick. So we find that a lot of people who want to do international business are happy to be here.

“Also, the council offers a 65% discount on business rates for businesses that relocate. So if you’re a beleaguered Shoreditch start-up, they are very happy to support you - and that, in a way, is stimulating the move.”

One start-up that has moved from Shoreditch’s co-working space, Hoxton Square, is digital marketing agency Couch. Founder Ash Rishi paid £200 a month for a desk in Shoreditch, compared with £240 for three months for one in Croydon.

“When I came up an idea to set up the business, everyone told me that Shoreditch is where I should be,” says Rishi.

“I was there for about three months and wasn’t happy at all. Paying freelancers sometimes meant spending £350 a day.  There were a lot of talented people there but they were very expensive and inflexible.”

Setting up in Croydon meant Rishi could go from a one-man band to six employees today.

“Healthcare is one of my biggest target markets, so for me, knowing that the Superdrug HQ and an upcoming Westfield shopping centre is in Croydon was good impetus. I began looking for designers and met very talented and affordable people for my company here.”

Savills’ Oakley thinks that Croydon might be the place for tech start-ups looking for a cheap yet quality base.

“Croydon was once one of London’s major office markets, the Canary Wharf of its day, but has since declined in popularity as a location for large occupiers. There are several major new office developments planned for the area, along with a massive new shopping centre, and these should inject new life into the area.

“At the moment the relative unfashionability of the area means that office rents are very affordable, and this and the proximity to central London should make it worth a look for start-ups,” he says.

Shepherd’s Bush & White City

Rent: £20-30 per sq ft

Digital access start-up Flooved has won investment from billionaire entrepreneur Lord Ashcroft and YouGov co-founder Stephan Shakespeare. It shunned Shoreditch for White City earlier this year. The founders think Tech City is a bit of a myth and that rents are extortionately high. (Here’s our interview with founders Hamish Brocklebank and Nicolas Philippe)

“Why should we pay a premium for the Tech City hype - the idea of the English Silicon Valley? We don’t see a point in investing money for the ‘cool’ factor, that in business doesn’t translate into anything,” says co-founder Nicolas Philippe.

“The government has to make more effort to transform Silicon Roundabout from a PR coup to something helpful and meaningful, never mind to compete with Silicon Valley.”

Oakley thinks that the W12 area has the potential to become the next tech hotspot.

“The Shepherd’s Bush and White City area is  definitely one of the next generation of hot new London submarkets with lots of exciting new developments, like a strong retail offering at Westfield, and plans for the redevelopment of the BBC’s television centre.  The BBC’s long history in the area means that media companies are well-represented in the area, and Imperial College’s new campus will bolster the area’s R&D credentials.”

Idea management start-up Wazoku is another Shepherd’s Bush-based company that thinks that Shoreditch is a victim of its own branding.

“[Shoreditch] is not great office space. It’s putting off people because you’re looking at £300 to £400 a desk a month, in a shared space. If you look at where most of these offices are, half of them are in buildings that are due to be knocked down for being renovated on some kind of short-term rent,” says Simon Hill, co-founder, Wazoku.

“Shoreditch is very congested, there is no parking space. However, from our offices in Shepherd’s Bush, we can be with any client in half an hour. Most of our clients like coming to see us because we have convenient parking spots - and clients frankly like that.”

Holborn & the City

Contrary to what you might think, setting up a start-up in Holborn isn’t crazy. Research by Knight Frank has found that a rise in rents is forcing tech firms to move away from Shoreditch into the City and towards Holborn.

The study suggests that tech firms actually acquired a total of 869,000 square feet of office space in the City of London during the first half of the year, compared to only 513,000 square feet taken by financial firms.

Blippar founder Ambarish Mitra chose Holborn to open an HQ. The area’s location and offices of various creative and media buying agencies were main reasons to set up base here.

“There is a sense of a slight commute to come to Shoreditch. We wanted it to make it as easy as possible to meet these agencies. We are next door to these agencies, and that’s a big advantage.

“Also, I am of the school of thought that you need to build your product before you print your sweatshirt. I’ve seen too many Shoreditch-types printing the best business caps, pen and stickers before building the product. The false environment of coolness is pointless. People need to understand that it’s a business and it’s all about profit and loss.”

James Roberts, head of commercial research at Knight Frank, thinks that the technology, media and telecoms sector will together take up more than 1.8 million sq ft of office space in the City in 2014.

“The tech and media firms have outgrown converted warehouse offices and are now seeking modern, high specification office buildings. These are largely found in locations that up to now have been legal or finance-dominated, but the techs are arriving and transforming the occupier market,” he said.

And don’t forget this lot…

Forget Tech City! Mayfair is where tech start-ups should be

Level 39: Is Eric Van der Kleij building his own Tech City in Canary Wharf?

Is this new Clerkenwell hub London’s most exciting tech hot-spot?

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