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June 26, 2018

As the UK’s tech sector continues to expand, urban areas across the country are set to benefit as real estate investors look for opportunities to capitalise.

Tech towns and ‘silicon suburbs’ are springing up around growing industries such as big data, AI and cyber security, fuelling demand for affordable office space as the industry grows.

Venture capital investment in the UK tech industry stood at US$7.8 billion last year and the country is home to 13 of Europe’s 34 start-up companies, valued over US$1 billion.

Across the UK, 16 tech town and eight cities, have been identified as fertile breeding ground for the next generation of tech start-ups, according to the new report, 2018 Tech Nation.

“One of the great myths of technological progress is that it destroys jobs. It doesn’t. Technologies like deep learning and AI are actually creating more demand for talent than the labour market is able to supply,” says Owen King, Director of Corporate Research at JLL in the UK.

“Tech start-up incorporation rates are rising across the whole of the UK, driving demand for affordable and flexible office spaces. This has been one of the drivers behind the rise of co-working spaces, as entrepreneurs and growing firms value the flexibility these spaces offer and the ability to work alongside their peers.”

Location, location, location
Skills shortages in the UK mean firms need to work hard to find talent. Attracting a more diverse workforce helps expand talent pools and drives innovation; the locations able to attract this talent are likely to see growth.

It means considering what workers want when picking where to set up.

“Identifying concentrations of talent in individual sub-markets and districts is becoming fundamental to location strategy,” says King.

“There’s a virtuous circle we’ve seen play out across many markets – talent moves in, which pulls tenants into the area, helping drive the evolution of a tech cluster.”

King believes there is a real opportunity for investors in second-tier cities like Bristol, where turnover was £7.9 billion in 2017, and 198 digital businesses set up the previous year.

As the UK’s tech sector grows there is a need to find the skilled workers to fill jobs such as data scientists and software engineers, he says. This means locating near universities and colleges or linking with businesses to form communities offering training or advice from peers.

Cities with above average levels of tech employment are: Portsmouth, Bristol, Cambridge, Southampton, Oxford, York, Salisbury and Bath. While towns include Newbury, Reading, Basingstoke, Slough and Heathrow, Guilford, Huntingdon and Swindon.

Tech firms in cities like Cambridge may once have chosen to re-locate to London as they grew. However, business in the city has boomed in recent years as companies take advantage of the proximity to a world-class university and industry experts. Last year, 145 new digital businesses started locally.

Growth of ‘silicon suburbs’
And, it’s not just office. These growing companies need residential housing, better transport links and fast broadband connections – all of which offers potential for investors, says King.

This knock-on impact on real estate has been coined ‘silicon suburbs’ – hubs that develop when a well-known name relocates, and others follow.

King says investors may be able to spot future hotspots from looking at which sectors are most likely to adopt tech in the future, and where they are based. Areas like professional services are likely to benefit, for example. He says the trick is anticipating where tech workers may be needed and what homes, offices and infrastructure they need.

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Owen King

Director of Corporate Research, JLL UK.

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