The tech-lash is coming. Facebook founder Mark Zuckerberg has been called for questioning by governments around the world over the Cambridge Analytica data breach scandal; Amazon is in the midst of a debate about taxes and inequality in Seattle; and Google has been criticised by senior politicians for its tax avoidance policies.
The exponential growth of the “Big Four” tech companies – Google, Amazon, Apple and Facebook – has been a boon for parts of the industry. They take huge offices in major global cities, develop data centres, occupy enormous warehouses and buy retailers.
So, could a political backlash pose a serious risk to tech companies? And what could the impact be for real estate?
Political threats
Tudor Aw, head of tech at KPMG, says politics is one of the three top risks faced by tech companies – along with disruption risk from rival firms and consumer risk from disaffected users.
“[To make sure] they are paying their fair share of tax is clearly uppermost for the Treasury,” Aw says of the political risks that could affect the companies’ growth plans.
Data privacy breaches and the “rogue use of platforms” – where everything from sex-trafficking posts to terrorist videos appear on sites – could also lead to government regulatory interventions.
However, Aw does not see any potential political reaction as a serious risk to the growth plans of the Big Four.
“All those political risks would come at a cost but not at a level that would jeopardise their business model,” he says. “I don’t think anyone is about to close down premises or not pay rent. These are just about decreasing what are really high profit margins.”
One example is Seattle’s proposed new tax to tackle homelessness, which asks local companies to pay $275 (£205) per employee.
Amazon, which has around 40,000 staff in the city, would be due to pay around $11m a year. (It makes around 44 times that amount – circa $487.3m – in sales every day.)
Aw believes the political risk to tech companies is less threatening than consumer risk, where users become fickle or disillusioned with them.
“I think corporate responsibility is bigger than government,” he says. “Where some of their end users are worried it is more concerning.”
He adds: “Google and Apple were thought of as the new cool kids on the block. Now they are seen very much as establishment.
“I was at a Silicon Valley conference recently where a panel topic was ‘Google – good or bad? Discuss’. A few years ago that would never have been a question.”
The Cambridge Analytica scandal, which saw the data firm accused of harvesting data from more than 50m Facebook users without their consent, led to $60bn being wiped off the value of Facebook in two days.
Share prices of other tech companies also fell on the back of it. The hashtag #deletefacebook started trending on Twitter. However, even if 1m users left Facebook, it would represent less than 0.1% of its user base.
While it is becoming less fashionable to be on Facebook, with decreasing numbers of US teenagers forecast to use the social media site regularly this year, the company can fall back on its ownership of its less-tainted brands – Instagram and WhatsApp.
Tech cities
The public is divided about the benefits of a large tech company presence in cities.
In Athenry, County Galway, Ireland, residents launched a legal battle to prevent Apple from building a $1bn data centre on a 500‑acre site previously used for growing non-native trees.
However, the development also drew a 2,000-strong march in support of the scheme last year.
In addition to employment opportunities, it was due to deliver an outdoor education space for local schools, a community walking trail and the restoration of native trees.
In May, Apple pulled out of the plans ahead of a supreme court hearing, citing concerns over planning delays.
Ireland is responding in part by amending its planning laws to include data centres as strategic infrastructure, to allow them to get through the planning process much more quickly.
The row is symbolic of the “do whatever it takes” attitude of many local government leaders who are desperate to attract the high-skilled jobs and investment that come with a real estate commitment from one of the tech giants.
Paul Swinney, head of policy and research at think-tank Centre for Cities, says: “The benefits [for cities] of having a tech company locate there are direct in terms of jobs themselves.
“Second, there is the multiplier effect as their presence increases demand from shops and restaurants and other local services and has an impact on extra jobs created elsewhere in the city. It’s definitely a good thing if the city can capture that investment.”
Amazon’s competition for cities to win its investment for a new headquarters, expected to deliver 50,000 skilled jobs and $5bn in investment, drew 238 applications, with many applicants using tax breaks to try to attract the tech giant.
“The mayor of Georgia even offered to rename the city “Amazon” if it won the bid. However, there are fears cities could lose out from the benefits of tech investment if they go too far.
“Cities and localities have got to be very careful about entering into bidding wars,” warns Swinney.
Rather than just going for the glitzy element, being part of the beauty contest, being seen to be open to business, the reality is, if you have got a number of weaker fundamentals in your economy then they need to be addressed
“We have seen from the locations of different businesses – including Amazon itself in London and at its headquarters in the US – that they are prepared to pay a premium to make sure they get access to high-skilled workers.
“It is not actually looking for a discount. Of course, it will try its arm, but if it had a choice between a low-skilled city with a subsidy and a high-skilled city without a subsidy, it would still choose the high-skilled city.”
Meanwhile, cities are spending valuable time and money preparing bids for something they will never win.
“Rather than just going for the glitzy element, being part of the beauty contest, being seen to be open to business, the reality is, if you have got a number of weaker fundamentals in your economy then they need to be addressed,” adds Swinney.
The ‘GAFA effect’
Property agents at this year’s MIPIM conference were heard discussing the “GAFA effect” – Google, Amazon, Facebook or Apple taking office space, causing land values to rise by 20%. Guff? Possibly.
But there is no denying the industry views their presence as a positive for the area where they choose to locate.
Knight Frank’s central London research report from January 2018 citied technology companies’ attraction to the city as a key factor in the office sector’s resilience since the Brexit vote.
Patrick Scanlon, head of central London research at Knight Frank, says in the report: “Over the past few years, attention has been on the tech giants; the London real estate industry has been trying to second-guess the sector and identify the next Google or Facebook to commit to large-scale developments.”
Does he think those firms will disappear any time soon? No. “We will also see growth from the larger occupiers as they continue to refine their products and services,” he says.
“Facebook recently announced its intention to double its staff working on security to 20,000; this will be a growing area of concern for all tech firms and will create growth as staff are hired to counter cyber threats.”
Bigger than you think
It is important to remember when discussing the Big Four that they are not simply a search engine, online retailer, smartphone manufacturer and social media company.
They are all multi-faceted businesses engaged in a race to become operating platforms for our lives, through which we buy all products and operate all services.
This platform ambition has been behind their acquisition drives, with Amazon leasing a fleet of Boeing planes last year and investing in shipping as it creates its own transport network.
Dror Poleg, founder of Rethinking Real Estate, says: “I do not see political risk as a major concern for commercial landlords. Amazon will likely continue to grow, and perhaps even more [quickly] if it is forced to build its own postal service from scratch.
“Facebook might face a consumer backlash, but the sister companies of its main ‘brand’ seem poised for continued growth.
“Apple managed to stay out of the latest media circus, and Google is building its own cities and acquiring multibillion-dollar assets — expanding what is already a very large property portfolio.”
Poleg argues landlords should be more concerned about Amazon taking space at WeWork while also making its way into real estate assets – from delivery lockers in apartment buildings to ring door locks and Echo units monitoring tenant behaviour.
Or Facebook developing its own employee housing project and moving into online listings; or Google’s foray into development and operation.
More broadly, and more than any political risk affecting tech companies, he says landlords should be concerned about how tech culture is “redefining what employees and employers expect from their space”.
Reflecting public anxiety about the growth and power of the tech giants and how they handle our data, politicians will continue to raise concerns and moot the idea of new regulations.
In May, the UK’s culture secretary, Matt Hancock, weighed into the debate, arguing the country needs stronger legislation to ensure co-operation from social media sites.
However, with scant details of how that would be enforced and questions about whether local politicians keen to enjoy the benefits of tech companies’ investment in their areas would back a significant challenge to the sector, serious regulatory action seems far off.
And if politicians do crack down on the tech giants, they are now so big it is unlikely to be the death of them.
As one Facebook software engineer in London was overheard telling a guilty-faced Facebook deleter at a party earlier this year: “We have got 2bn users. I think we will survive.”
To send feedback, e-mail Louisa.Clarence-Smith@egi.co.uk or tweet @LouisaClarence or @estatesgazette
