The technology sector is notorious for containing various companies that have expanded in a short period. While revenue growth and staff numbers can be welcome, too often, firms quickly grow their office space without a long-term or strategic real estate vision, despite a significant change in workplace needs. A lack of a strategic approach to workplace needs can negatively impact future growth and an organisation’s finances.
Technology firms are synonymous with having to be reactive to their market conditions, coasting along in a slow gear one minute, then at a supercharged pace the next. Whether it is the instant success of product or an influx of capital, a real estate strategy can see them jump from sharing an office with a few colleagues through to committing to a 5-year lease with a multiple-member workforce in a short space of time.
The rapid rate of growth will have an impact on an organisation’s ability to secure the ideal space, as demand for short-term high-quality space in the preferred location remains under pressure as the supply of best-in-class real estate continues to struggle to keep up with the high level of demand. This is where flex space comes into play. Fast growth tech firms have long been associated with occupying flexible office spaces. The flexibility that licence agreements can afford a growing firm is not to be underestimated, as costs can be controlled, good access to several other sites that are quite often contained within that provider’s portfolio, and the ability to dial-up and down on space at short notice depending on businesses space requirements, are all invaluable aspects of the short-term flex model within the commercial real estate market.
More established technology firms with a more secure and longer-term view on their growth forecasts, can have a different outlook on their space needs and opt for a more conventional leasehold premise. While being able to control your own space and create more of a personal look and feel to the design and layout, there are of course limitations. Relocating to leasehold premises can often result in longer lead-in times to carry out the necessary legal due diligence requirements, especially when dealing with sub-tenancies and superior landlord consent issues. Satisfying covenant concerns, having to part with substantial rent deposits or parent company guarantees, together with higher capital expenditures on both the front end of a lease (fit-out costs, fees and Stamp Duty Land Tax), and then at lease expiry with potential reinstatement liabilities, are all serious considerations to take on board when acquiring leasehold real estate.
Tech firms have historically clustered in areas creating sub-markets akin to micro-ecosystems. The number of these has increased significantly in recent years and are not just centred around the traditional Old Street / Silicon Roundabout and Shoreditch Triangle. Traditional business districts in the City, West End and Midtown are fast becoming home to tech firms of all sizes.
Looking to the future, various tech firms will continue to experience the good fortune of rapid growth that will impact their workplace needs. DeVono expects to see continued adoption of flexible leasing in the tech sector, which will benefit this fast-paced industry.