Jonathan Rosenblatt: London’s tech boom is changing attitudes towards commercial property
The Headspace Group MD on whether the property market can cater to start-ups’ needs
The rise and rise of the technology media & telecoms (TMT) sector in the UK, and specifically London, is changing the face of the UK office market.
Whilst the large, headline grabbing deals – such as Amazon’s 210,000 sq ft letting in Holborn and Google’s new complex in King’s Cross – are well documented, it’s at the start-up end of the market where the commercial property sector is struggling to keep up with its new entrepreneurial tenants.
The needs of the tech start-up tend to be very specific. Growth expectations are high – tech sector growth and recruitment is outstripping that of the UK private sector average – yet these businesses are invariably young, entrepreneurial and, to an extent, speculative at launch. This tends to mean that founders often cannot predict whether their business will employ five people or 200 people over the course of a year.
The issue with this is that the commercial property sector has so far struggled to keep up with the demand of its new, energetic and expansive tenants. Traditionally, office space is let on a five-year lease for a specific demise with very stringent parameters. Tenants are expected to spend a large amount of capital fitting out and redecorating the space to a level that complements their business. The square footage that they have at their disposal needs to be appropriate for the five years that the tenant is in situ, irrespective of business’ expansion or contraction.
Furthermore, this newer breed of tenant wants space that matches their brand. Fresh, modern spaces that allow for flexible working i.e. not restrained to a desk. Designer couches, ping-pong tables and fully loaded chocolate cupboards are now commonplace in offices. Employee satisfaction – beyond salaries - at work is a key driver for tech businesses.
These sorts of fit outs are, however, expensive and most landlords are not keen on the high-end speculative outlay (for obvious reasons) and prefer to leave the investment in their property to the tenant. Of course, rarely are tenants able to offer this sort of initial capital expenditure - particularly new businesses.
So the quandary for the TMT sector is that the property market is struggling to cater for their needs. Few traditional landlords, and in particular institutional landlords, are thinking outside the parameters of a very tired and antiquated leasing model. Leases are, by their very nature, inflexible and tenants today require, first and foremost, flexibility.
Inevitably, the property market is beginning to adapt. We are seeing more and more flexible working spaces pop up which offer the privacy and exclusivity of the traditional office-leasing model, but with the flexibility and style of the co-working spaces that are proving to be so popular with freelancers and individuals. There is a growing demand for this model and we have seen this first hand at Headspace Group (we were 100% occupied within four months of launching and are currently expanding the operation further) as well as amongst our competitors. It is vital that this segment of the property market continues to develop. London thrives on its reputation as a home of tech innovation and ensuring that our capital continues to attract these fledgling companies is dependent on a range of different factors, not least availability and suitability of office space.
Jonathan Rosenblatt is Managing Director of the Headspace Group, a flexible working space in Farringdon, London, catering for tech and creative businesses