London startup costs for tech

Knight Frank’s Global Cities report has found that London puts the most financial strain on tech start-ups compared with its international rivals.

It will hardly come as a surprise that London tech start-ups face significant outlays when it comes to renting space to work in. The capital remains, in the UK at least, the place where the majority of entrepreneurs want to work and live. But what may come as a shock to many is how creative districts in London, such as Shoreditch, compare with American counterparts and European rivals.

According to the latest Global Cities report from Knight Frank, the huge demand for space in Shoreditch has led to 600 sq ft of start-up office space costing over $66,000 on average per year – the highest of any creative district in the world. New York’s Brooklyn ($62,736) and San Fran’s Mid-Market ($61,680) are the only two cities that come close in comparison, with London’s European neighbours such as Dublin ($47,345) and Amsterdam ($31,546) significantly cheaper to set up in.

Co-working spaces keeping London competitive

Despite the soaring rental cost in London, Knight Frank’s report suggests that Shoreditch offers the greatest cost saving for tech businesses that choose co-working spaces. The cost of occupying four desks in a co-working space in Shoreditch is $28,933 per annum, a saving of 57 percent compared to traditional office space.

That London’s market for co-working spaces offers the largest discount on traditional space makes total sense. But how beneficial is it for start-ups to share?

Knight Frank’s chief economist, James Roberts, admitted that although co-working spaces are playing an important role, the model isn’t sustainable if London is to compete in the long run. “As we head towards Brexit, tech start-ups are the sort of firms the UK will be looking to for future growth,” he said. “So it is disappointing to discover London is such an expensive place for them to rent business space, at least if they want their own offices.”

“Collaborative offices are consequently playing a vital role in offering affordable business space, but for start-ups to move to stage two as companies, they will ultimately need their own offices. London needs to be more affordable for tech firms if it wants a home-grown Google or Twitter.”

Read more: How do IoT start-ups survive and thrive?

Co-working isn’t just about cost savings

Speaking with Mehram Sumray-Roots, co-founder & product director of events management app yada, it’s clear that there’s more to co-working in London than just cheap office space.

“I believe that London will always be viewed as an incredible hub for talent from all areas,” she said. The ambition, determination and desire to succeed is palpable in our capital city and a lot of people both foreign and native find it infectious.”

“There are loads of benefits to being in a co-working space! We are currently based in the WeWork building in Spitalfields, are surrounded by prospective clients, connections and have access to 1100 potential users. The atmosphere in the building is the perfect balance between working hard and hardly working, with the ping pong tables, beer on tap and Thursday networking events. However, this doesn’t mean we don’t get things done! They create an environment that makes you want to come into work and continue to earn enough money to remain here.”

Testing times for IoT start-ups

While the inflated costs of rent in the capital will affect the wider start-up community, for IoT start-ups there are other significant challenges. Investment in new IoT players is at its lowest level since 2013, according to CB Insights, while M&A activity is also slowing. All of which points to some testing times for IoT start-ups.

So what is the key to success? At the Internet of Insurance conference in June, Domotz COO Patrizia Cozzoli, OSeven CEO and founder Vassilis Stivaktakis and Quantifyle’s Philippe Marchal and Dele Atanda (CEO and president respectively) discussed the key ingredients to start-up success, with AXA PPP’s head of innovation, Clare Selway, focusing on the importance of corporate accelerator programmes.

The experts agreed that skilled personnel are absolutely essential for IoT start-ups to be successful. Stivaktakis said: “The value of a start-up is in the people working for the start-up.”

Large rental costs in London are of little surprise. For IoT start-ups, it will be more interesting to see whether the industry has started to mature or if investment picks up in the second half of this year. Attracting the best personnel is surely dependent on this.