London Tech Week returns once again giving all those in the technology sector from business leaders and investors through to the broader tech industry the opportunity to come together to discuss their contribution to the London and wider UK economy, now and in the future. Now more than ever, technology innovations and successes are needed to support the economic recovery post-pandemic and post-Brexit. The week’s events also afford businesses the opportunity to understand more about the challenges the industry faces, especially as companies grapple with the quandary of how to adopt a ‘return-to-the-office’, in addition to higher expectations from employees and the workspace that they are asked to operate from.
At DeVono, we advise a wide range of tech businesses, from start-ups to established companies, with both national and global presences, with the planning and implementation of their real estate strategies. The fast pace at which the sector operates, whether it be through talent acquisition, space expansion, or even reduction, as well as the varying successes of venture capital funding rounds, means that workplace planning is an ever-changing facet of the industry.
To shed some light on some of those aspects we have brought together our Head of Insights, Shaun Dawson, Director of Workplace Consultancy, Amanda Irwin and Ben Ashby, Director in our Occupier Advisory team to offer their view on the shifting landscape affecting the workplace and those that work within the sector.
While a technology firms’ success is driven by its product and/or concept, this is ultimately fuelled by those that contribute to it. Having the right people onboard is key in any industry, however, in recent years the tech sector has felt acute pressure due to a shortage of talent, exacerbated not least of all by the pandemic. The high level of demand for tech talent has meant that the balance of power now firmly lies with the worker – but what does this mean for the physical office space?
Simply put, the office is the ‘front door’ to any business, and first impressions last. Providing a workplace that people are lured to enjoy spending time in, and which supports their role should not be understated. This is especially true when competitors might be offering more enticing workplaces with greater amenity and focus on well-being, thereby providing an opportunity to move to another firm with a ‘superior’ working environment, The transient nature of tech workers makes this a lot more pressing.
The building itself, and the amenities it provides, the design of the office space within it, the location, ease and cost of commute, are the major elements that influence a worker’s impression of their existing/future working environment. Other factors include how the space can facilitate new ways of working such as the much-talked-about hybrid model. It is noteworthy that technology adoption is the catalyst to help ensure a smooth-running workplace, creative benefits for those in the office, and the chance for enhanced collaboration, both professionally, and socially.
All of these aspects will go a long way in creating the optimum workspace for the tech employee. Deploying the office as a tool and incubator for talent should be a core part of any business strategy.
Culture is the lynchpin of all firms, but tech firms thrive more than others on providing unique workplaces and cultures that foster the workforce, especially those with a younger demographic.
What defines the culture of a company involves a myriad of things, but ultimately has people at its heart. It may sound a little too cliché but it is 100% true: a happy heart is a happy workplace. Over the past 18 months the pandemic has shifted company cultures, and in a sector that already struggled to retain its best people, ensuring that culture not only returns but is improved will be important.
The topic of staff attrition/attraction is inextricably linked to culture, and is even more poignant now – if another firm can offer a more thoughtful culture that promises flexibility and development, what is to stop that person from leaving?
Tech companies have long been pioneers in promoting flexible working, wellbeing and providing attractive perks. Unlike some other industries, the tech sector adapted swiftly to remote working and for some, it has opened the eyes of businesses and individuals alike as to what is the future of work. One size does not fit all, and as the return to the office gathers pace, tech firms must strike the right balance of hybrid working provision and ensure that the workplace is fit-for-purpose to support business goals, productivity, staff welfare and maintaining those core cultural aspirations.
Company culture exists whether it is intentionally created or not, and a culture left to its own devices that is bandaged with pool tables and Friday drinks is not sustainable in the long run. Company culture is nurtured by harnessing the voice of the workforce and providing a base where employees can grow within a business. An office’s location, design, and how it is used can help grow and develop company culture, rather than striving to define it.
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.
ESG (Environmental, Social, Governance ) responsibility comes both from the corporate and individual, and each must play their part. Where the two align is within the office environment. The physical workplace is fast becoming an area where significant gains can be made in satisfying business-related environmental goals. Whether it is the attention to the use of resources such as water and electricity, or through the actual fabric of the building, which ideally would offer its own level of sustainability credentials, a joined-up approach has never been more important. The impact of inaction could negatively affect customer relations, revenue, and the well-being of staff and their morale.
What is becoming more apparent, is the need to address not only the ‘E’ but the ‘S’ in ESG. With the dramatic shift in working away from central hubs the last 18 months, workers are expecting more and different benefits such as permanent flexible working arrangements that can greatly improve work-life balance. To ensure businesses are achieving the highest standard in their social goals, special attention needs to be taken to engaging their people and understanding how workforce expectations have shifted.
The technology sector has been quicker than most to include environmental targets and controls within their governance structure. Tech firms have, for several years, been a key driver in office leasing activity in cities across the UK. Their flight to high-quality buildings has increased exponentially in those years, and their desire to secure the best-in-class space supports both their talent and more recently their ESG requirements. As demand for more ‘green’ workplaces increases, are firms willing to pay that extra premium for higher quality spaces?
All businesses at some point must prioritise where future investment is directed. For tech firms, their hands are often tied. One of the biggest hurdles they must contend with is a highly transient workforce, and in an industry where you need to seek out and secure the best talent, the cost can be a significant dent to the bank balance. After securing the best talent, you then must provide the best working environment. Investment will then be needed to create a workplace that people actually have a strong desire to attend, to both work and socialise with one another. Funding of research and innovation, ongoing investment into tech hard/software… the list goes on. All these priorities seemingly go hand-in-hand but the job of prioritising one over the other, in what can be very tight funding rounds, is a balancing act for FDs and CFOs.
To ensure the best return on investment in the workplace, a robust strategy is needed to ensure budget is spent in the right places to make the most difference, giving users a seamless experience, nurturing company culture and increasing worker productivity.
The challenge of managing costs will become imperative, especially as the workplace and workforce evolve post-pandemic. For a tech company to remain relevant in a highly competitive market it must appropriate its funds wisely, and whilst real estate is a large consumer on budgets, it should not be side-lined.