Dan Harvey is running on adrenaline. Adrenaline and “a little sleep”. Cushman & Wakefield’s Bay Area vice-president has just flown in to his native San Francisco from London – via Paris – as part of a trip to investigate a European expansion for $3bn (£1.9bn) global cloud computing giant Salesforce.
This is good news. Particularly for the UK capital. “London. Is. It,” says Harvey, sitting on one of the swivel high stools in the agent’s San Francisco HQ. “Salesforce is one of the biggest firms looking there seriously at the moment. And we’ll see more. This year I have been to London, Paris, Tokyo, Sydney, Melbourne, Tel Aviv, Stockholm and Munich. Out of all of them London, hands down, is the most dynamic international city ?for tech.
“In terms of cities outside of the US, it is the one with the most tech, innovation and creativity to lure these Bay Area start-ups. Outside San Francisco and New York, London is the place.”
Praise indeed for a city that, in all honesty, is still getting to grips with a relatively new wave of tech and start-up activity – certainly when compared with San Francisco and Silicon Valley. And yet the companies that started life in the incubator spaces and low-grade peninsula offices of the Bay Area see London as the next big thing.
But is the UK capital ready to give them what they want? Do we have the right space? The right lease structures? The right attitude towards casual work wear?
Harvey sheds some much-needed light on the subject.
The city centre sea-change
First off, some explanation ?as to why the time is currently so ripe for Bay Area tech companies and start-ups to look at opportunities in the UK. Of course there is the fact that tech culture here is growing fast and will be driven forward further and faster by the new 860,000 sq ft King’s Cross Google HQ.
But there is something happening in California which looks set to speed up the process even more dramatically – the desire to go from horizontal to vertical. For years tech firms have seen the sprawling campuses and ?low-rise, cheaper areas found ?in Silicon Valley as the right place to be.
Harvey insists that this is all changing. “The new tech era is being driven by San Francisco, not the Valley. This is primarily down to the fact that this is where the talent wants to be. The 25-to-35s don’t want to be in Silicon Valley, which doesn’t have much of a sense of place. They want to be in San Francisco, which has a density and a gravity. People get pulled here because of the lifestyle, the risk capital, the culture – they want to be in a 24-hour city.
“OK, so companies like Google and Facebook won’t ever move into the city. They need the space for their giant campuses. But that’s why they have to bus their talent in from here, that’s how they make it work. And it is worth remembering that those companies are already the old guard. New firms such as Salesforce [which has agreed to lease the whole 27-storey 350 Mission Street building currently under construction in downtown San Francisco]Airbnb, Square, Uber, Twitter, and StumbleUpon all want to be here. They are the disruptive business models forcing the old tech companies to respond. The workforce is changing the landscape and the focus has shifted to city life.”
The impact of this on London could be huge. The cultural sea-change occurring in the States means that city centre life and tech firms are more aligned than ever before. Huge, sprawling campuses – the type of space central London would never be able to offer – are no longer the only way to lure the next Californian start-up success story to UK shores.
King’s Cross and Shoreditch will do the job just as well.
London love-in
Harvey is looking at space for several US tech clients in London and says, without doubt or exception, that only the centre will do. He says: “These firms have no interest in the Thames Valley, Maidenhead, Staines or Slough [where Amazon will be moving from in 2016 to take up space in Holborn]. They want to get into Noho, King’s Cross or Shoreditch.”
He adds that transportation will be key and that Crossrail is “becoming a huge factor in determining where US firms are choosing to go”. Obviously the Google effect will see the popularity of King’s Cross soar, as Harvey says that all it has been lacking in the past is “any product” – a problem which has now been neatly eliminated.
“Shoreditch is interesting,” he continues. “There is a lot of potential there to deliver on space. There are those buildings with larger floorplates – I mean up to 27,000 sq ft. That will attract US firms looking for warehouse-style industrial spaces.”
Teething problems
But what about the challenges? On the face of it, there are plenty. Do we have enough of the right space available? Then there is the fact that some US start-ups – particularly the smaller ones – have complained that London is just too expensive to consider. And could the UK’s traditionally rigid, lengthy lease structures put fast-moving, nimble tech firms off?
First up, the available space. One thing worth remembering here is that there has been ?little new build in San Francisco over the last five years, so repurposing interior spaces has been a common – and crucially easily transferable – way.
Harvey explains that developers and landlords in San Francisco have had to listen to, and act on, the message from new occupiers that a fresh, young workforce wants different things from ?its space.
The physical design – particularly the interior – has to support collaboration. Space for breakout and added extras like kitchens or chill-out rooms should take precedence over traditional square footage allowances per person.
“You need more density so people can talk,” he explains. “It’s not 200 sq ft per person anymore. Maybe it’s 150 sq ft now. Instead there needs to be space for people to move around with their computer, work away from their desk if they like. And this is exactly what developers and landlords in London need to remember.”
Moving on to the issue of leases, Harvey says that the UK has come a long way over the past five to 10 years. “I think London is becoming much more liquid in its approach to real estate,” he says. “It used to be all 25-year leases, which is a huge problem for tech firms, which would love to work quarter by quarter if they could. They don’t want to be signing 10-year, let alone 25-year, leases. And capital markets are making big multigenerational commitments. They want stability. So you have this duration problem. I think London has made huge steps towards shorter-term leases but it needs to go further.”
On just how much further, he suggests that the UK needs to find a way to do things in five- year or even three-year increments. Perhaps through partnering. “A company like, say, Land Securities, which owns so much stock, could start to create liquidity, couldn’t it? Just say someone could sign a 10-year lease but, as long as you stay within a LandSec asset, you can move within that decade to a bigger or smaller space? The developer has the security of a tenant for 10 years, just not necessarily always in the same space. There needs to be more of this type of thinking. Thinking around problems. And it needs to happen more here in the States too.”
High costs will always be a problem – “London is probably the most expensive city in the world” – but not a big enough one to put people off. “The desire is strong enough,” he says. “People want to be there. Have to be there. London has so much talent.”
Culture clash
Despite the fact that, in many ways, the UK and US are a good cultural fit, when it comes to the US tech sector and the UK property industry, the gap widens somewhat. Smart business attire is pretty much nonexistent in the Bay Area – particularly among the occupiers. A casual, untucked shirt and jeans combination is about as polished as many of them get. And the style across the board in the Bay Area is much more relaxed.
But does any of that really matter?
To a degree, says Harvey. “Culture and looks do matter,” he says. “These companies are being led by very young executives – people in their 20s, 30s and early 40s. And whether they are meeting their broker or a landlord, they want to work with people where there is some cultural compatibility. And part of that comes down to the way people dress and present themselves.”
That’s not to say that UK agents should start wearing hoodies and trainers. The Bay Area C&W brokers all don suits Monday to Thursday – they just make sure they style them up. A pair of tan Chelsea boots here, a woollen button-up tank top there – examples, apparently, of how to give business attire the sort of edge that will put younger tech clients at ease.
Whether this will catch on back in London remains to be seen. And let’s be honest – if high costs and smaller-than-ideal floorplates are surmountable issues on the quest for London space, then a smart suit-and-tie combo is unlikely to be the deal-breaker that sends these US firms running back to California.
But it is an interesting point to consider, and one that may well become more of an issue in future as occupiers become younger. And younger.
And ultimately, London and San Francisco don’t need to morph into one and the same. “There will be three or four interconnected cities, including London and San Francisco, that will really thrive,” says Harvey. “Each will keep their own identity but the tech sector will pull them all closer together. And that’s what will change everything.”
emily.wright@estatesgazette.com
