Why Shoreditch is still so attractive for young firms – Investec Comment

For a young business finding its feet, office space is a classic challenge. Alongside being a sizeable overhead, the question of how much space you take and how long you take it for is not easily resolved. Landlords will typically want to sign you up for as long as possible. But while your company is changing, long-term leases will not always be appropriate. Conversely, landlords that offer shorter-term arrangements are often looking to redevelop in the near future, and so you may find yourself being asked to move before you are ready to, which can be incredibly disruptive.

 

For businesses that need to be in central London, this problem has never been more acute. A supply shortage hangover from the financial crisis, combined with a planning system that has increasingly encouraged developers to convert existing office stock to residential, has not only seen rents spiral but has caused the supply in traditional locations to move away from servicing the needs of young businesses.

 

But there are reasons to be positive – infrastructure improvements and office space innovation are making the quality of accommodation offered in City fringe locations such as Shoreditch and Clerkenwell more desirable than ever. While rents have risen in recent years, these are still extremely attractive places to base a young and growing business.

 

First and foremost, rents are still comparatively low and there is a good variety of stock. Good quality space can be found for between £40 to £60 per square foot and, with a high proportion of it second-hand warehouse conversion in style, there is a greater weighting to the lower end of the range. Compared to the West End, where it is not uncommon to see rents exceed £80 per square foot in Soho, this is a sizeable saving.

 

The potential development pipeline is also compelling. It's still a massively underdeveloped area, and so alongside the conversion of warehouse style units, we have only just started to see the development of higher density modern developments. As such, Shoreditch will likely remain competitive with other parts of central London for the foreseeable future, with its greater scope to contribute towards London's office supply.

 

Second, the area continues to enjoy a cluster effect, with many smaller tech firms seeking to be closer to their larger peers in order to benefit from the enhanced collaboration that proximity allows. A prime example is Amazon, which recently agreed to take 400,000 square feet for its European HQ at Principal Place in Shoreditch. Such large companies act as anchor tenants for the entire area. A lot of small companies will be suppliers to a big giant in one way or another, and being located nearby can facilitate closer commercial ties.

 

There are also benefits to being situated within a network of other new firms, and Shoreditch is of course host to a thriving community of startups. This has led to innovative office space offerings, and the area has been at the forefront of more flexible and collaborative office environments with developments such as The Tea Building. Culture is critical here. Shoreditch is a clear cultural fit for many tech and creative companies, having become a major social and cultural hub in recent years.

 

Finally, the area's transport infrastructure is excellent. Alongside being located right next to the City (part of the reason for the growth of fintech companies in the area), Shoreditch has access to five Tube lines and the London Overground. It is also very well connected to the transport hubs at King's Cross and Euston (and the sizeable new developments at the former, including Google's UK headquarters). This connectivity will only be enhanced by the arrival of Crossrail at Liverpool Street in 2019, creating a direct link to Heathrow Airport, and the world beyond the UK.