Cities of Transformation: London’s Digital Business and the Challenge it Creates for Developers

October 12, 2016

Author: Jonathan French, Director and Executive Chairman, Middle East

The digital, knowledge-driven economy has become a fundamental component in the success experienced by a number of major cities across the world: San Francisco, New York, Berlin, Tel Aviv, Sydney and, of course, London. While many tech start-ups will fail—or remain as SMEs—some will follow exponential growth curves and become established corporate brands in a matter of years, rather than decades. Many former tech start-ups are already household names and their brands carry huge cachet. Companies like Dropbox (founded 2007) or Uber (founded 2009) demonstrate how tech companies can become serious businesses worth hundreds of millions of dollars in a short space of time. Against this backdrop, innovative companies with just a few people working on laptops and operating from the corner of a shared workspace can quickly find themselves taking on large numbers of new staff at short notice—and across different global regions—in response to dramatic and extraordinarily high online demand for their products or services. Sustained by the creative collaborative capital of talented individuals—combined with an equally collaborative work environment conducive to maximizing the potential of their workforce—these businesses aspire to finding larger premises from where they can continue to innovate and drive relentlessly towards new markets.

While clearly successful by any measure, such companies do not generally fit the recognised model of solid, regular, year-on-year growth which many property developers and landlords look for in tenants. They often have little or no existing covenant strength and are unable to commit to taking long leases or renting space. Nonetheless, it is likely that some digital businesses may already be approaching billion-dollar valuation levels and employing hundreds of staff without ever having signed a formal lease agreement on their premises.

This is a gap in the market which companies like WeWork have identified and capitalised on by offering a new model for office development which suits the less conventionally predictable requirements of digital business. There has been—and continues to be—a lot of ‘Buzz’ created around digital business. Young, innovative, challenging and disruptive companies continually pop up, seeking to harness the dynamics of a fast-paced, knowledge-driven economy. They are eager to prove their success as organizations that can operate seamlessly across geographies, time zones and linguistic, legal and regulatory boundaries. Not all will become Google giants or LinkedIn leviathans; but the ones which manage to ride the wave of early-stage excitement will emerge needing stronger definition and identity. And they will, crucially, seek the authenticity which helps to give them a distinctive ‘Uz’ factor in the surrounding noise and unpredictability of the ‘Buzz’.

Being able to occupy the right sort of space in well-connected locations is key to this process. Some commentators go further and suggest that office space is now being monetized beyond its intrinsic rental value. This additional value may be due to the attractiveness of the office environment in retaining talent; or it may be due to the way in which particular types of space offer a degree of ‘corporate credibility’ among clients and investors; or it may even be due to how the space helps to define and establish the authenticity of a fledgling tech brand. Wherever this extra value lies, the new generation of innovative, creative businesses are clearly expected to offer their employees far more than just a place to work. The spectacular rise of digital business over barely a decade has been little short of breathtaking. It has also seen a serious shake up in the way in which many developers and landlords are having to think about the types of space they are able to provide for their tenants.

This event provides an opportunity for developers, landlords, investors and the digital business community in London to engage in some of the issues around the disconnect between providers and the needs of occupiers in the tech sector. Does the property community really understand the spatial requirements of digital businesses and is it doing enough to offer them the sort of premises they need? Is workplace design sufficiently flexible to accommodate deliberately disruptive businesses with disaggregated organizational structures? What can we in the UK learn from other markets such as North America where the tech sector has evolved further? And what trends can we see emerging which are likely to impact this sector 10 or 20 years from now and how should we be preparing for them?

Workplace Architecture