A significant shift is under way in North America. It is a shift that could not only undermine a host of stereotypes around one of the world’s fastest-growing occupiers, but one likely to have a knock-on effect across the globe. The tech sector is moving on up.
Knight Frank’s Global Cities Skyscraper Report 2015, published this week, reveals a tall tower resurgence in North America is narrowing the gap with Asia as the world’s leading continent in the skyscraper stakes. One of the major drivers behind the shift is an upswing in popularity of high-rise office space among tech and digital companies – particularly in New York and San Francisco. And while this trend may still feel alien to the UK market, where swathes of tech firms remain clustered in the industrial, warehouse-style buildings in east London, the UK capital is likely to be the next city to see this shift affecting occupier patterns.
“In this sector you start seeing patterns emerge in northern California, usually San Francisco, then the trend moves to New York, then London, then the US regions and finally the rest of the world,” says James Roberts, chief economist at Knight Frank. “It is not just an economic pattern but a psychological one and we would definitely expect to see this trend emerging in London next. It already is – just look at what Amazon is doing and Salesforce moving into the Heron Tower.”
So how, and why, has this trend started to arise now? And will the pattern start to move beyond the big-name tech giants to the small start-ups that have traditionally shunned the kudos of shiny, iconic skyscrapers?
Tech tenants
The Knight Frank report focuses on New York – which added four towers to its skyline in 2014 – as the city where the shift among tech occupiers is currently accelerating. Tech firms in One World Trade Center (pictured) – the tallest skyscraper in North America as of 2013 – include High 5 Games, Kids Creative, Incandescent Technologies and Tinyspace, while the Empire State Building is now home to tech giants including LinkedIn and Shutterstock.
But, as Roberts points out, the shift first started in northern California around three years ago as major TMT firms followed the young talent out of Silicon Valley and into the buzzier, better-connected San Francisco. “When Google, Facebook and eBay had to start paying to bus people down to Silicon Valley out of San Francisco it put the stake in the ground,” says Duncan Logan, chief executive of RocketSpace, a co-working start-up he launched in San Francisco in January 2011. “People wanted to be in a central location, even if it meant working in different, more high-rise office spaces.”
The impact of this initial shift has been huge. In San Francisco – a peninsula surrounded on three sides by water – there is not much room for sprawling campus-style space. And tech firms, including Airbnb, Twitter, Pinterest, LinkedIn and Spotify, have become used to launching in buildings with smaller footprints.
Roberts adds that it is no coincidence that the world’s skyscraper hubs tend to be either peninsula or island cities where space to grow out is limited.
But he adds that tech occupiers are still tech occupiers, and a shiny building with iconic status for the sake of it won’t be enough to attract them. “These buildings will need to be flexible and future skyscrapers really do need to be designed and developed with the next generations in mind,” says Roberts.
Flexibility will be key and a move to mixed-use clusters such as in Manhattan’s Far West Side and London’s Nine Elms are likely to be popular with the tech set – somewhere they can live and work that is not dissimilar, culturally at least, to the campus set-up.
There is also expected to be a shift towards a mix of tenants, with tech companies taking the lower, cheaper floors of tall buildings and wealthier companies taking the top floors where they pay higher rents for better views. This is common in San Francisco.
Hondo Enterprises, one of London’s young developers, is looking to do the same in the UK capital and plans to introduce a mix of tenants at its first major London development – the 22-storey, 100,000 sq ft Relay Building in Aldwych, EC1. Chief executive Taylor McWilliams is convinced that a statement lobby –complete with a full-sized tube carriage as a piece of public art, tempered by a “brochure-friendly” shiny exterior a stone’s throw from the City – will attract a mix of traditional and creative tenants.
Groundscrapers
As to why this shift is occurring now, and the wider impact on London, Eric Van Der Kliej, chief executive of Canary Wharf’s Level39 incubator space, says it is partially down to start-ups growing up.
“This is a continuation of the sector,” he says. “Young start-ups are suited to shabby chic warehouse basement offices, but when they start to get bigger warehouses are not very scalable. And as the companies become more serious they need something more impressive.
A start-up might be born in Shoreditch but increasingly it will look to grow up somewhere like Canary Wharf. That doesn’t mean Shoreditch isn’t still essential. It is just part of an earlier stage.”
And Simon Allford, the architect behind the design of the new King’s Cross Google HQ – the 1m sq ft groundscraper plans are currently being tweaked – adds that we are entering a new phase of tech firm growth, which will require both low rise and high rise.
“Low rise has traditionally been preferred over high rise because of bigger floors,” says Allford. “High rise is great, too, everyone enjoys a view. But you want to avoid big lumps of space. It is best to think of a high rise as lots of low-rise buildings stacked upon each other.”
Roberts adds: “I think there is a place for groundscrapers. But a city only ever needs, or can accommodate, so many. They are useful for companies such as Google who are after huge expanses of space. But for an awful lot of firms those kind of floorplates are just too big – even broken down.”
As for the smaller firms, the prop tech start-ups and younger companies – it comes down to more than questions of whether they have the financial backing to afford office space in the world’s shiniest and most iconic skyscrapers. It is whether that’s even what they want. And the view from some US cities is that, for now, it is not.
Warehouse resurgence
Howard Tullman is chief executive of Chicago-based start-up hub 1871. He says that tall buildings in the city that launched the concept of the modern office block are of no interest to the digital start-ups he is working with. And he argues that the story in the Windy City is almost the exact opposite to the one that the Knight Frank skyscrapers report is telling.
“There is a warehouse resurgence in Chicago,” he says. “They are being repurposed in the city to create a lot of new space. I would say that tall buildings and skyscrapers will become less popular with tech companies and we will see a lot more low-rise, mixed-use schemes emerging that are better suited to what the next two generations are going to want from office space. They are just not interested in the footprint of high rises. The view is not important to them.”
He adds that as law firms and banks “shrink”, the next generation of potential high-rise users are unlikely to want to pay the premium.
But Knight Frank’s Roberts points out that warehouse conversions, while popular now, have a limited shelf life: “Those rather wonderful Victorian brick warehouses with high ceilings and great light? Well, we stopped buildings those a long time ago and the modern shed is not a very attractive offering for an office conversion. Plus, those traditional warehouses also make for great resi conversions, which limits the overall supply.”
He adds that while high-rise working life won’t be for everyone and low-rise alternatives are unlikely to disappear completely, skyscrapers and tall buildings look set to be the most sustainable option as space constraints continue to tighten.
In the world’s leading cities, the move towards high rise is being driven out of necessity rather than choice – and as the occupiers look to make the most from the situation, it is down to developers to ensure their skyscraper schemes are primed and ready in time to cash in on the evolution.
