“UK firms might look at what we do and say, ‘That’s not for us.’ What I don’t think they have yet realised is that they don’t have a choice.”
Whatever you do, don’t let Duncan Logan’s opening gambit put you off. The chief executive of US office hub Rocketspace might come across as blunt – particularly in print and out of context – but there is a distinct possibility that he could be absolutely right. In which case it would be worth reading on.
This San Francisco-based Scot is about to enter the UK market with a business model that has launched more successful start-ups and raised more venture capital funds than anyone else in the world in just three years.
The 42-year-old started Rocketspace in 2011 with 30 desks and not enough furniture in a run-down district of San Francisco. Now the $30m (£18.3m) group operates out of 75,000 sq ft filled with 550 people in 130 companies. This is in addition to a further 270 start-ups, including Spotify and Uber, that have worked from Rocketspace desks – raising $2bn in funding between them in 30 months. Demand for desk space in the San Fran HQ is now so high that Logan has had to limit applicants to tech start-ups that have already been through a round of funding.
Despite the stricter criteria, more than 30 new companies still apply each week for one of the $800-a-month spots as chief executives of major corporations including American Express and Pernod Ricard often drop in to get a first look at fresh tech investment opportunities.
Logan wants to open a London outpost this year and is on the lookout for a suitable 100,000 sq ft space in central London. He says this will be just the start of an ambitious expansion plan he will roll out across the UK and other countries, “like an airport network”.
Here he explains his strategy for taking over the world, reveals who he will work with to make it happen and considers the ongoing problem that property and tech just do not mesh.
It is new, not a fad
If this is the first you have heard of either Rocketspace or the man behind it, then you are already coming a little late to the party. The group might not be the name on everyone’s lips just yet, but that does not mean it is not on the right people’s radar. A surprising number of key developers, investors and agents nod and raise an eyebrow at the mention of the name. And Tech City’s head of property Juliette Morgan is in no doubt that these guys are going to make a splash when they land on UK shores. “Rocketspace is like a big tech totem pole in the middle of San Francisco, drawing in talent and feeding the heart of the cluster. Its ability to host companies as they start and scale is unmatched in the UK and rare in the US,” she says.
“If it makes it on to the London property scene, it would replicate the same secret sauce here and enable companies to grow in one space, and aggregate with investors, partners and support services.
“It would be like Google’s campus on steroids.”
For Logan it is not just about being known in the UK. It is about the British property market fully understanding the potential effect of what he is setting out to achieve. “Anyone dismissing the co-working office concept as a fad is making a grave mistake,” he warns.
“It is new. But that certainly does not mean it will be a passing phase. This is the way people want to work.”
He believes that Rocketspace has entered the office hub market so early that it is a bit like being one of the first-ever hotels. “There are a few hubs out there,” he says, “but nothing like what we do and what we are planning. Taking the hotel analogy, there are the equivalent of a few B&Bs dotted around the world. We’re about to come into the market covering everything from Airbnb to The Four Seasons. Within six years, offices as a service will represent 10% of the real estate market. And within four to six years Rocketspace will be a $1bn company.”
He talks a big game, but it is hard to shake off the feeling that, rather than exaggerating, he is probably just on to something. That, twinned with the success of the group so far in California, makes Logan’s business model a compelling one. While he talks up his overarching plans for the company, he plays down the move into London. “People seem to think 100,000 sq ft is a huge space. It sounds a lot but it’s not really. Within a couple of years it will seem very small by comparison because what we are doing is driving a new ecosystem of young companies, many of which will expand.”
And while he cannot imagine a better place to kick off his grand expansion plan than the capital, Logan has a thing or two to say about how much we Brits have to learn about the tech sector.
The London Plan
“A lot of people in London know hardly anything about tech, which is crazy considering it will soon be London’s biggest sector – bigger than finance, banking or insurance,” says Logan. “There are some people on the ground. like Juliette [Morgan] from Tech City, who really get it. But the way people do business in general is not very in tune with tech yet.
“It is not a massive problem because London has a great reputation for catching waves and it is, without doubt, the most impressive tech hub outside of the US. We have a checklist of 18 things we are looking for in a new base, ranging from transport to political will, and London scores highly. And then there is that ace that Britain has up its sleeve – the language. Just by being English-speaking the UK is already at the top of the list for any US firms looking to expand overseas. If China spoke English, Europe wouldn’t get a look in. I think China will rapidly be looking to do something about that.”
In terms of a London location, Logan says he has a specific set of criteria: “We would pay a premium to be central if we could find the right space. We are interested in King’s Cross, Farringdon. Maybe Old Street. What we will not do is move further south.”
As for who he is looking to work with, Logan doesn’t think any of the big developers – apart from Derwent London – have quite got their heads around the model yet. “There is no doubt in my mind that within five years British Land, Land Securities, Grosvenor – all the big developers – will be in this space. But it will take time. They are not the people who were first investing in hotels and self-storage. They came later. So for now we’re looking to work with smaller, more nimble people. We are drawn to asset allocators, pension funds, large holders of commercial real estate.”
Once the main London hub – which Rocketspace will own and operate – is up and running, Logan explains he will move forward with plans to set up a number of secondary hubs across the UK where the group will JV, and then there will be a third tranche of offices that Rocketspace will just license.
“It is going back to that hotel idea but this time in real terms. Across the globe we will have primary hubs in key cities like London, Tel Aviv, Sydney. For each destination the goal is to have one primary hub, 20 secondaries and maybe 30 third-tier offices. In the UK, after London we will be looking at Dublin, Belfast, Edinburgh, Birmingham, Manchester and Liverpool.”
The tech/property clash
Underpinning all of this is a challenge that comes down to the fact that tech and property just do not mesh together all that well. “Property people are not high risk,” Logan says.
“Their goal is to get what they want without making a mistake. That is different to tech entrepreneurs. That’s their thing. In the past we have got it wrong and treated property guys like venture capitalists. What we should be saying is, ‘This is how we can give you a safe return on your asset. And that 15% return is better than the 6% you are getting now’.”
Ultimately, Logan urges the UK property sector, and indeed the sector globally, to make sure it does not stick its head in the sand and get left behind.
“This is happening,” he says. “It started in San Francisco, it is heading to London and the rest of the UK and then we will take it global. Some people look at companies like ours – which has embraced a change – as disruptive. But disruption and innovation are exactly the same thing. It only becomes disruptive if you let it.”
He points here to Uber, the taxi service launched in the US in 2009 which grew exponentially in three years. It was valued at $3.7bn in August 2013.
“When Uber started, a lot of car and taxi services flinched and said, ‘That’s such a disruptive model’,” says Logan. “Apart from Avis. Avis said, ‘Wow!’ – and bought them.
Logan adds: “This huge demand for flexible office space isn’t going away. If you are a major real estate developer, you will just have to work out a way to run with it in a new model. It’s like the Kodak moment. Kodak never adopted the digital camera business, despite the demand. Kodak is no more.”
Joining the $1bn club
Logan stops to take a breath before delivering a final warning about the difference between the US and the UK attitudes to business. “I really, really wanted this company to happen with UK money in the UK,” he says. “We are going to be a billion-dollar company. But we’re going to be a billion dollar company headquartered in the US. As a Scot, I would have preferred to achieve this on home turf.
“But that’s where the Americans win. They have that mindset of, ‘Yes, let’s get on and do this,’ and they do it. The UK is still so reserved, so cautious. As I said, UK firms are much more likely to say, ‘That is not for us.’ But then, as I also said, they don’t have a choice.”
Logan’s progeny: digital firms that have taken desks at RocketspaceUber is a venture-funded startup launched in San Francisco. A mobile app connects passengers to drivers for taxi services and ridesharing. The company now operates around the world and has added a number of different vehicles at varying price points.
Kabam is an interactive entertainment firm. Before expanding into gaming, Kabam established itself as a social applications developer with entertainment and sports communities totalling 60m users.
Spotify is a commercial music streaming service. Total users reached 20m in December 2012. As of December 2013, free Spotify music streaming is now available on all mobile devices.
Supercell is a Finnish video game developer that creates games for mobile devices. In 2013 Japanese firms SoftBank and GungHo Online Entertainment bought 51% of Supercell for $1.5bn.
Zappos.com is an online shoe and clothing shop. In July 2009, the company announced it would be acquired by Amazon.com in an all-stock deal worth around $1.2bn.
Emily.Wright@estatesgazette.com
