London costs force Tech City startups to look elsewhere

Technology SMEs struggle to grow in London and are looking to other less expensive hubs and cities to start up their businesses

Technology SMEs are struggling to grow to their full potential in London and are looking to other hubs and cities to set up their businesses.

Technology startups and SMEs find London difficult to do business in due to to high costs, the lack of affordable office space and the skills gap.

70% of London SMEs have been struggling to expand their business in the capital. A YouGov report highlighted high business costs, lack of affordable office space and the skills gap as major barriers to growth in London.

Almost half of the 155 middle managers in technology SMEs in London did not believe the UK will produce the next Google, Facebook or Twitter in the near future. And 45% said the government is too focused on Tech City.

Half found the cost of running a business was too high in London, while 24% said there was a lack of suitably qualified people to hire.

Meanwhile, 25% cited a lack of affordable office space which has prevented them from growing. According to commercial property figures based on analysis from Colliers International, the area of Shoreditch that is home to Tech City has seen property rents increase by 46% in the last year, while vacancy rates have plummeted to 5% - the worst level since before the financial crash.

Other locations in the UK, such as Birmingham, could take business away from the capital. It has an existing digital economy, with 6,099 technology firms employing 38,300 people and contributing £768m to the regional economy.

Wouter Schuitemaker, investment director for Business Birmingham, said: “Establishing a regional base can help digital firms realise their ambitious growth targets. 

"Birmingham is uniquely placed to support these businesses – we are within easy reach of London and other tech hubs across the UK and offer an unrivalled support package to help companies locate here. Tech businesses can also recruit skilled staff quickly from one of the largest talent pools in the country. 

“We believe there’s huge untapped digital potential outside of London, and unleashing it will be to the immense benefit of the UK economy.”

One company which has opened a base in Birmingham, is online retailer ASOS. CIO, Pete Marsden said: “There are huge advantages for a digital company like ASOS diversifying beyond London. We’re an ambitious company with a need to expand our skills to keep pace with our growth.”

According to Marsden Birmingham has much more space and talent to allow the company to expand, while remaining in easy reach of the London headquarters.

Commercial property in London is over three times as expensive as Birmingham, making the midlands look very attractive to technology SMEs.

Sean Duffy, MD and head of technology, media and telecoms at Barclays, points to Manchester as another option for small companies. Home of Media City UK, the city has a growing relationship with technology and has always been highly connected, as it was one of the first places in the UK to have an internet exchange.

“Universities are often a catalyst for innovation and have played key roles in regional technology hubs,” said Duffy. 

“The various funds and accelerators they offer add real value to the likes of Cambridge and Manchester’s reputation as top destinations for the technology industry. And let’s not forget there are world class universities up and down the country, not just concentrated in a few isolated areas.”

He said that, as communication technologies and networks improve alongside transport infrastructure, more cities across the UK will become accessible.

“There is no reason that one place should have a monopoly on creativity and innovation,” he said. “There’s a huge opportunity in the UK to create a network of highly connected, highly specialised regional tech hubs that take advantage of local talents and resources to make the UK a silicon island.”

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