The Trouble with Silicon Roundabout

20/07/2015

Lizzy Chesters, Corporate Team

The Trouble with Silicon Roundabout

Silicon Roundabout, or Tech City as it is also known, is the area in East London around Old Street and Shoreditch that has become home to hundreds of new enterprises. After San Francisco and New York, it is the third largest tech start-up cluster in the world.

The growth of Silicon Roundabout

The growth in this particular location dates back to 2008; then the area was home to just around 15 technology firms, including Dopplr and Last.fm. Today that number has grown to an astonishing 1,472, according to Tech City Map. Interestingly, this growth occurred during the economic downturn and in fact, it is our outstanding technology sector has helped keep the UK economy buoyant over the last few tumultuous years.

The importance of this business revolution has not been ignored. In 2010 David Cameron founded Tech City UK, a non-profit organisation based in Shoreditch, to support and develop companies in Silicon Roundabout. Its aim is to establish an environment, across London and within the UK, in which digital technology businesses and entrepreneurs can flourish. To that end, Tech City UK has pledged £2.2.m funding over the 2015-2016 period.

But sadly, the word on the East London street is that Tech City is in jeopardy. 

The decline of Silicon Roundabout

The cheap rent, that had initially attracted so many start-ups, is rising rapidly. The basic economic principle of supply and demand means that these businesses have effectively priced themselves out of the area: rents in Tech City have doubled over the last five years. Average rental prices in Shoreditch and Clerkenwell were up 5% in 2014 to £52.50 per sq. ft. and are predicted to rise by another 9% in 2015. A recent study, by Tech London Advocates, noted that over 70% of tech leaders surveyed expect rents to significantly rise over the next 3 years: bad news for those fledgling companies hoping to set-up in the area. 

Understandably, the neighbourhood that these start-ups created held great appeal to corporate tech giants such as Google and Facebook, who quickly swept in and took up residence. Consequently, those rent prices have been forced up even further. Now, many of the smaller companies that operate out of Tech City are facing the grim prospect of having to move to a more affordable, and less dynamic, location.

It is not only the price of the rent causing problems. Building developers opening new office complexes want tenants to sign long-term leases. For start-ups in the early stages of growth, this is a major drawback. Tech start-ups have a habit of growing rapidly, or collapsing suddenly: to predict how many staff they will need to house, years into the future, is nigh on impossible.

Furthermore, the Tech City culture that fostered fantastic technological innovations is fast diminishing. When the global tech giants moved into the neighbourhood they brought with them upmarket bars and restaurant chains. As a result, the cheap pubs and coffee shops that were where new tech was dreamed up have now almost disappeared.

The talent deficit

Despite the Government’s throwing money at SMEs and start-ups, the country’s existing visa system is doing nothing to encourage the growth of tech companies in the capital. We have a complicated, slow and expensive system that discourages gifted individuals from overseas from coming to the UK. The abolishment of the post-study work visa in April 2012 has compounded the issue. Tech City and the rest of the UK are crying out for a visa system that moves at the same pace as our technology sector.

In addition, our own education system is letting down the sector. A recent survey found that 27% of all job growth in London is generated by digital and tech companies but not enough of our graduates possess the skills required to fuel this expansion. Our education system has, in the past, failed to equip young people with the necessary skills, such as coding, to cope in the modern workplace. Thankfully, as of 2014, all children in England are taught to write code from the age of 5: it is good to see that there are now efforts to introduce a more techno-focused curriculum to feed the UK tech industry. However, for a rapidly degenerating Silicone Roundabout, these efforts may be too little, too late.

Exodus from Silicon Roundabout

Tragically, a quarter of London’s tech firms are considering moving away, not only from the Silicon Roundabout, but the capital in general. In 2014, only 21% of firms chose to open up an office in Shoreditch (compared to 46% in Canary Wharf).

The question is: where will they go? Cheaper locations around Stratford, Soho, Canary Wharf, or other UK cities such as Manchester (home to the second-largest tech cluster after London) and Birmingham (which has its own Silicon Roundabout equivalent – Silicon Canal) are offering an environment reminiscent of the 2008 Tech City. Indeed, it is the unlikely city of Bournemouth that is emerging as the UK’s fastest growing tech cluster. The Tech Nation report – the first of its kind - found that 74% of digital companies are now based outside of London. It is clear there is an emerging trend toward moving away from the capital.

What does the future hold?

Most current funding and investment is directed predominantly towards London, leaving the rest of the UK’s entrepreneurs relatively underserved. It would be far better for the Government to encourage start-ups and entrepreneurialism across the UK, rather than focussing on the capital.

At the moment many companies are choosing to stay in Silicon Roundabout, although the start-ups of the future may not have the funding to join them. We can only hope that this doesn’t negatively impact or decelerate the UK’s rapidly advancing and thriving innovation scene. We’d like London to remain on the tech podium a little while longer!


 

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