By Esha Vaish, Sarah Young
High up in western Europe’s tallest skyscraper, an office layout shows how the power balance in London’s property market is shifting in favour of booming tech companies and away from finance firms which may shrink in London after the Brexit vote.
Some employees of digital marketing agency Jellyfish work from hot desks at The Shard, gathered around a long pine table suggestive of a trendy coffee shop, enjoying views of St Paul’s Cathedral.
Edged by a bar with a screen displaying train times, floor-to-ceiling whiteboards, cosy sound-proofed booths and a tap dispensing barista-style coffees, the design encourages staff to work together.
“We wanted to be taken seriously, not just frittering client money away with crazy guys on roller skates, so this is a serious space,” said the company’s Chief Creative Officer Mark Deeprose.
Jellyfish’s offices are one sign of how fast-growing tech firms are calling the shots in the London property market, outshining the finance sector which accounts for around 8 percent of British GDP and has long been the cornerstone of the capital’s property scene.
Property developers are ditching the marble fittings, suspended ceilings and tight rows of desks associated with the grand old banks, replacing them with more spacious irregular offices finished with the brickwork, colourful furniture and exposed wires beloved of tech companies.
Since Britons voted on June 23 to leave the European Union, some financial services companies have threatened to move operations to other European capitals over fears that Brexit may prevent them serving EU clients.
Tech companies, however, have shrugged off the vote and are expanding in London, with Google and Facebook leading the charge, helping property developers with a greater tech exposure to outperform their peers.
“Immediately after Brexit no one was doing anything but once we got into August and September, all of the tech firms just seemed to say, well, we’re moving on,” said James Roberts, chief economist at property consultant Knight Frank.
According to the broker, rental demand from tech names including Apple and WeWork meant that 2.7 million square feet (250,000 square metres) of central London office space were leased in the quarter that followed the June 23 vote, a 15 percent increase on the previous three months.
Interest from the likes of Spotify and Deliveroo promises to support future office demand, and UK online fashion retailer ASOS has announced plans to expand in London this month, drawn to the city’s talent pool and international status.
By contrast, Barclays has announced it is sub-letting a quarter of the space in one of its main offices in the Canary Wharf financial district.
COFFEE SHOP STYLE
For ASOS’s expanded and redeveloped London headquarters, it has used software to map how its people use the building to encourage different units to work together. It will also have a quiet library, and a concierge service to help employees with their needs outside work.
“(Tech) is an active sector at the moment and we’re seeing developers beginning to acknowledge this within the way that they’re building,” said Simon Calvert, senior director of advisory and transaction services at property firm CBRE.
But the growth in tech may not be enough to fill new commercial property space. The City of London warns that up to 10 percent of jobs in London’s financial district may be lost if Britain fails to secure adequate EU access after Brexit. At the same time, London office construction has reached its highest level since 2008, according to Deloitte.
British Land, developer of the “Cheesegrater” office tower in London’s historic financial district, is reducing the amount of office space it builds without a guaranteed tenant, and is instead refurbishing sites to add more flexible accommodation.
It has amended an existing planning consent at a site in Paddington, west London, to introduce features such as sun terraces, a rooftop basketball court and collaborative work spaces that position the building more towards the TMT (technology, media and telecommunications) sectors. “We’ll adapt tactically, but we’re confident that’s good for the longer term,” CEO Chris Grigg said, after the firm in November posted a fall in the value of its office portfolio which gets 17 percent of its rent from banks and finance firms and 7 percent from TMT.
French insurer AXA’s investment management arm has decided to go ahead with a new skyscraper in London’s financial district, reversing a decision taken in the wake of the Brexit vote to put the project on ice.
Harry Badham, who heads the UK development team at AXA IM – Real Assets, said the 22 Bishopsgate site would aim to attract tech clients with a plan to offer space for an incubator workshop for start-ups where they would charge lower rent.
Luring established tech clients requires not just space with an industrial, retro vibe, but also flexible rental deals, said Andrew Sell, commercial director at Real Estate Management (UK), which handles The Shard.
“Whereas before there was an aversion from the owners to have lease breaks, we recognise it’s really important for the tech sector because their rate of growth is colossal,” he said.
Software firm Sage Group, for example, negotiated at least two breaks in its lease when it moved to The Shard, he said. Sage added extra space less than a year later.
Providing tech-friendly offices may also eventually serve to attract financial services firms anyway, said Neil Prime, JLL’s lead director of Central London Markets.
“Ten years ago maybe the banks’ model was rack it, stack it and squeeze them in,” he said.
“(But) the banks are going to be competing with the Googles for these digitally-enabled people, they are going to need to have that (tech-friendly) environment,” he said.
(Editing by Adrian Croft)
Source: Reuters