Is the success of London's 'silicon roundabout' forcing new start-ups out of the capital?

Tech City has been the focus of Britain's tech scene but if its success continues, start-ups will have to move to other parts of the country.

Tech City, or Silicon Roundabout, is the UK's flagship technology cluster. It's also the only cluster in the UK that enjoys full governmental recognition and support. Just look at the Tech City Investment Organisation – a body that has been set up by the Government to help to grow Tech City – for evidence.

The small area that encompasses Tech City – Old Street and Shoreditch – has seen a boom in tech start-ups setting up shop since 2008, growing from around 15 to 1,363 (according to the government-sanctioned Tech City Map) in five years. This sort of growth is unprecedented in other industries during this economic downturn, but it's typical of the burgeoning technology start-up industry in east London and the fast-growing clusters that are popping up around the UK.

Naturally, the resultant boom for the local economy and subsequent media and governmental attention have meant that residential and commercial property prices have rocketed. If that continues, start-ups will be priced out of the area, which means Tech City could, ultimately, become a victim of its own success.

In 2008, a similar technological revolution was happening in Old Street. Creative, media and tech companies were renting cheap commercial space to set up their businesses. The Old Street area was renowned for the artsy types who occupied it and its proximity to the City meant a business could have that central London status. Firms that started out there, such as TweetDeck, Songkick, Last.fm and Dopplr, began life as start-ups, with many later being bought by larger conglomerates.

The number of digital companies that reside in the area changes depending on where you get your information. The Tech City Map says that there are 1,363, whereas a report by the Centre for London think-tank estimates that there are 3,200 firms, employing 48,000 people. Either figure is a significant increase from the handful of companies that first ventured east, and the inevitable paradox of success is that the cheap workspace that attracted these companies to the area initially, is now at a premium.

"We set up in Commercial Street in 2007 because we all lived in the area and liked the nightlife," says Ian Hogarth, the chief executive and co-founder of Songkick. "We also found it to be a lot cheaper than other options." Hogarth agrees that the huge increase in tech firms has caused rents to soar, and he'd even consider moving if this current trend continued. "We have seen a recent rent increase [30 per cent in four years]. If we rented a much bigger office, I'm not sure whether we would remain in Shoreditch, or if we would move further east or north to cheaper, larger spaces. We would not, however, move out of London."

It's not just commercial property that has seen an increase; it's residential, too. The lettings manager of Foxtons Shoreditch, Suzi Robertson, says that the Shoreditch area has seen a sharp increase of around 20 per cent in residential lets since 2010.

Ian Hogarth's case is not isolated; this is a reality for many other entrepreneurs in the area who have recently started up, or are looking to do so. A tech boom in San Francisco's Tech City has meant that four out of 10 of the US's most expensive housing markets are in the San Francisco Bay area, forcing up rents by 11 per cent in one year and pricing out local businesses, residents and even people looking to relocate to work in the tech scene. London is not far behind. And with proposed legislation that will allow developers to turn Shoreditch office space into apartments without planning permission, it could happen sooner rather than later.

Many companies have seen this spiralling trend and looked to thwart it by moving to another cluster in the UK. Places such as Newcastle, Cambridge, Manchester, Brighton and Leeds already have bustling tech clusters that are experiencing good growth, but maintaining respectable rents. A quick comparison on Zoopla and Rightmove shows that a 200 sq ft office in Old Street will set you back £498 per calendar month, whereas a 355 sq ft property in Talbot Road, Manchester, will cost as little as £266pcm.

Dave Carter, the head of the Manchester Digital Development agency, recognises that this is attractive to entrepreneurs. "In terms of cost, it's much cheaper for both commercial and residential, which is a big bonus to companies that are looking to start up and for their employees who want to move. Start-up costs in London, just for things like rent, will eat away at whatever start-up fund that organisation is relying on. There are also lower labour costs and Manchester's digital village is all very close together so it's easier to get around." Manchester Digital estimates that the creative and digital local industry employs around 45,800 people, a figure that is constantly rising.

"In terms of financials and burn rate, Newcastle makes far more sense than London," says Paul Smith, the director of the accelerator programme ignite100. "You can rent a three-bedroom house in an affluent area for the price of a studio flat in the capital. Contractors and staff are more affordable. There's a shortage of skilled developers countrywide, so for a business that needs to keep its burn rate as low as possible, it makes sense to hire in a city such as Newcastle because it lengthens a start-up's financial runway. We're seeing start-ups base their development and design in Newcastle, and commute to London several times a month for business development and networking." There are around 40 to 50 tech companies in Newcastle's tech cluster.

The digital start-up Jeanography decided that London wasn't financially viable and set up, instead, in Leeds. Its main developer is based in London but the company is headquartered in Leeds. Alex Heaton, one of the co-founders of Jeanography, showed The Independent the astonishing difference in price between the two cities. "Jon's [the developer] desk is located at Google TechHub [in London] and costs £350 a month. Jeanography HQ is an 8m x 8m office in central Leeds, has car parking and internet connection included in the monthly cost of £350, and is home to four members of the team."

It's clear that the sharp increase in rents and the ever-rising costs of London are putting entrepreneurs off the capital, which is benefiting/creating other clusters in the UK. Tech City, and London generally, is still the main driving force for the country's economic output, but unchecked start-up costs will be detrimental to the capital's Tech City status if digital companies can no longer afford to set up there. The one bonus that can be drawn from this is that the expense of London is unintentionally redressing the balance of the digital economy by driving companies to set up elsewhere. This, however, shouldn't be because of Tech City's downfall.

Life and Style
ebookNow available in paperback
ebooks
ebookA delicious collection of 50 meaty main courses
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
SPONSORED FEATURES
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Gadgets & Tech

    Recruitment Genius: Account Manager - North West

    £25000 - £30000 per annum: Recruitment Genius: This is an opportunity to join ...

    Recruitment Genius: Account Manager - South West

    £25000 - £30000 per annum: Recruitment Genius: This is an opportunity to join ...

    Recruitment Genius: Digital Account Executive - Midlands

    £18000 - £23000 per annum: Recruitment Genius: This is an opportunity to join ...

    Recruitment Genius: Office Manager

    £21000 - £26000 per annum: Recruitment Genius: This is a fantastic opportunity...

    Day In a Page

    Isis profits from destruction of antiquities by selling relics to dealers - and then blowing up the buildings they come from to conceal the evidence of looting

    How Isis profits from destruction of antiquities

    Robert Fisk on the terrorist group's manipulation of the market to increase the price of artefacts
    Labour leadership: Andy Burnham urges Jeremy Corbyn voters to think again in last-minute plea

    'If we lose touch we’ll end up with two decades of the Tories'

    In an exclusive interview, Andy Burnham urges Jeremy Corbyn voters to think again in last-minute plea
    Tunisia fears its Arab Spring could be reversed as the new regime becomes as intolerant of dissent as its predecessor

    The Arab Spring reversed

    Tunisian protesters fear that a new law will whitewash corrupt businessmen and officials, but they are finding that the new regime is becoming as intolerant of dissent as its predecessor
    King Arthur: Legendary figure was real and lived most of his life in Strathclyde, academic claims

    Academic claims King Arthur was real - and reveals where he lived

    Dr Andrew Breeze says the legendary figure did exist – but was a general, not a king
    Who is Oliver Bonas and how has he captured middle-class hearts?

    Who is Oliver Bonas?

    It's the first high-street store to pay its staff the living wage, and it saw out the recession in style
    Earth has 'lost more than half its trees' since humans first started cutting them down

    Axe-wielding Man fells half the world’s trees – leaving us just 422 each

    However, the number of trees may be eight times higher than previously thought
    60 years of Scalextric: Model cars are now stuffed with as much tech as real ones

    60 years of Scalextric

    Model cars are now stuffed with as much tech as real ones
    Theme parks continue to draw in thrill-seekers despite the risks - so why are we so addicted?

    Why are we addicted to theme parks?

    Now that Banksy has unveiled his own dystopian version, Christopher Beanland considers the ups and downs of our endless quest for amusement
    Tourism in Iran: The country will soon be opening up again after years of isolation

    Iran is opening up again to tourists

    After years of isolation, Iran is reopening its embassies abroad. Soon, there'll be the chance for the adventurous to holiday there
    10 best PS4 games

    10 best PS4 games

    Can’t wait for the new round of blockbusters due out this autumn? We played through last year’s offering
    Transfer window: Ten things we learnt

    Ten things we learnt from the transfer window

    Record-breaking spending shows FFP restraint no longer applies
    Migrant crisis: UN official Philippe Douste-Blazy reveals the harrowing sights he encountered among refugees arriving on Lampedusa

    ‘Can we really just turn away?’

    Dead bodies, men drowning, women miscarrying – a senior UN figure on the horrors he has witnessed among migrants arriving on Lampedusa, and urges politicians not to underestimate our caring nature
    Nine of Syria and Iraq's 10 world heritage sites are in danger as Isis ravages centuries of history

    Nine of Syria and Iraq's 10 world heritage sites are in danger...

    ... and not just because of Isis vandalism
    Girl on a Plane: An exclusive extract of the novelisation inspired by the 1970 Palestinian fighters hijack

    Girl on a Plane

    An exclusive extract of the novelisation inspired by the 1970 Palestinian fighters hijack
    Why Frederick Forsyth's spying days could spell disaster for today's journalists

    Why Frederick Forsyth's spying days could spell disaster for today's journalists

    The author of 'The Day of the Jackal' has revealed he spied for MI6 while a foreign correspondent