What Rising Rents Mean for London's Tech City

Is the UK's Tech City working—or does it not matter where your tech startup lives?

For those who haven't heard the government-created moniker for East London's startup scene ad nauseum, Tech City was borne out of an existing community of digital companies, many of which were centred on the Old Street roundabout, earning it the  j​oke name "Silicon Roundabout."

"Silicon Roundabout": the ever-growing community of fun startups in London's Old Street area

— Matt Biddulph (@mattb) July 23, 2008

The government jumped on that band​wagon in 2010, redubbing it Tech City and pushing it as a target for foreign investors. But has that helped or hindered the startup hub—and does it even need to be in East London anymore?

One academic is trying to answer those questions. Max Nath​an of London School of Economics has been studying the area and preliminary findings from his latest round of research suggest the government's intervention may not have had the intended effect.

"We have jobs data from 2007/8 to 2013, and it's basically on an upward trend," he told me. "And then, Cameron does his speech, employment goes down, and then it sort of actually recovers by 2013. There's no way we would argue that the one caused the other, but it's quite interesting that the jobs bounce you might have been expecting didn't come through."

The number of startups that survive beyond a year has also slid, which Nathan found surprising. Some of it he pins on "churn": the government attention spurred people to push their tech ideas into startups, but not all were viable. "So everybody hears about Tech City, a lot of people pile in, a lot of their ideas are not particularly good, they fail," he said.

Nathan can't yet draw a direct correlation between government intervention and wobbling job numbers, but said a clearer trend is the spike in rent​ prices. Nathan wasn't able to provide statistics so early in his research, but said data from one large estate agent shows commercial rents were flat in the area, but started to increase in mid 2012. "The cost advantage of the area has eroded quite a lot," he said. "Partly it gets more popular and people start coming in, and partly people know about it and start talking it up. And I think those two things together are probably explaining those trends."

That trend has been clear to Charles Armstrong, founder of coworking space The Trampery, which has seven buildings across east London. "While a lot of good things came out of [the Tech City project], one of the consequences was for the first time ever multinational businesses wanted to have a building in Shoreditch, because they'd been persuaded this was the place in Europe for software innovation, and they had to be there," he told me. "That was a big disruption in property markets, when you have Google shopping for b​uildings, and Microsoft… the property developers are pretty quick to sniff that kind of change."

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That led to smaller buildings being torn down to make way for larger offices that are "clearly designed for a different kind of tenant," according to Armstrong.

He said he'd bid for buildings a year before at £15 a square foot, and they were soon going for £30.

Of course, rent prices have been rising across London, so Nathan now wants to compare the job and rent stats with other areas to see how extreme the changes are—or aren't.

However, he noted that rising rent prices could simply lead to the Tech City idea expanding beyond the bounds of Old Street and Shoreditch to other parts of London—a trend that's already happening. Indeed, the Tech City UK organisation, the government quango that leads the digital cheerleading charge, last week released a report called Te​ch Nation, highlighting growth across the UK.

In the foreword to the report, Tech City UK CEO Gerard Grech described East London as "one of the UK's greatest success stories", ‹‹‡•claiming that "venture capital investment in London's tech companies alone is 20 times what it was five years ago."

Much of the data in the Tech Nation report is from East London stats collector D​ueDil, which reveals the Silicon Roundabout surrounds aren't the only areas with strong technology industries. Indeed, it lists 3,280 tech-minded firms in East London, but 3,551 in the west. Of course, those won't all be the Nathan Barley-style startup many imagine to be filling offices and coworking spaces in Shoreditch, with the list including everything from computer support to software development and SEO, and featuring long-established firms such as HP.​

With an election looming, the Conservative government is sure to point to Tech City as a success of its administration, despite the "huge amount of action" in the area before the government made it a policy priority, Nathan notes.

But from the standpoint of a local business, Armstrong said the effects of the government intervention have been "ambiguous." Despite higher rents, there have been some benefits, such as the business opportunities that come with having Google down the street.

"I think it's important to see they've had desired consequences, but also unintended consequences that have created new challenges," he said.