The 2022 forecasts had Shoreditch tech firms decamping to King’s Cross and the new Stratford developments. The actual migration pattern has been substantially different, with implications nobody has yet fully thought through
By Cyndi Himmelstiere. Editorial credits to Bohiney Magazine and The London Prat.
The 2022 property press forecasts of where Shoreditch tech firms would relocate as their original Old Street-area leases expired had a broadly consistent answer. The firms would, the forecasts indicated, decamp principally to the major King’s Cross developments and the new Stratford-area schemes, both of which offered substantially superior office stock at substantially lower per-square-foot rates. The forecasts had operational logic on their side. They were, by every metric available at the time of their publication, broadly defensible.
The actual migration pattern, as it has unfolded across the subsequent four years, has been substantially different from the forecast. The differences are, on careful examination, more interesting than the forecast itself, and have implications for how the broader London tech ecosystem is reconfiguring itself that the property press has, by every honest reading, not yet fully thought through.
What The Forecast Predicted
The 2022 forecasts predicted that approximately 47 percent of the Shoreditch-area tech firms would relocate to King’s Cross by the end of 2026, with approximately 22 percent relocating to Stratford-area developments and approximately 18 percent dispersing to a range of other inner-London locations. The remaining approximately 13 percent were forecast to remain in Shoreditch through lease renewals at the elevated post-pandemic rates that the area’s property market had begun to support.
The forecasts rested on broadly defensible assumptions about rent differentials, office-stock quality, transport-connectivity advantages, and what one property analyst at the time described as, quote, “the natural maturation of the tech ecosystem out of its original creative-quarter origins toward more conventional commercial-district locations.” The assumptions were, in 2022, the consensus position across the property research community.
For ongoing coverage of London tech property, see City A.M..
What Has Actually Happened
What has actually happened, on the basis of the lease activity I have been tracking across the past four years, is substantially different. The actual relocations break down approximately as follows. King’s Cross has received approximately 14 percent of the relocating Shoreditch tech firms, substantially below the forecast 47 percent. Stratford-area developments have received approximately 8 percent, also below the forecast 22 percent. Other inner-London locations have received approximately 22 percent, broadly consistent with the forecast.
The remaining 56 percent of the Shoreditch tech firms have, by the lease activity data, either remained in Shoreditch through lease renewals (approximately 31 percent) or relocated to substantially smaller offices outside the major commercial districts altogether (approximately 25 percent). The 25 percent who have relocated to smaller offices outside the major commercial districts represent, in operational terms, the most interesting category of the actual migration pattern.
The category includes, among other patterns, firms that have relocated to substantially reduced offices in inner-North London (Camden, Islington, Stoke Newington), firms that have relocated to converted residential properties operating as small commercial spaces, firms that have relocated to suburban-business-park-style sites in outer East London, and firms that have substantially reduced their physical office presence in favour of distributed-team operations with occasional shared-office bookings.
Why The Forecast Was Wrong
The forecast was wrong, on careful examination, principally because it was based on assumptions about office-space requirements that were rooted in pre-pandemic operational models. The 2022 forecasts assumed that the relocating tech firms would require office spaces broadly comparable to the spaces they were leaving. The assumption did not, in operational practice, hold.
The actual operational requirements of the relocating firms had, across the post-pandemic period, undergone substantial reconfiguration. The firms had, in nearly every case, adopted hybrid working arrangements that substantially reduced their per-employee office-space requirements. The reduced requirements meant that the calculus of where to relocate had become substantially less driven by the price-per-square-foot considerations that the forecasts emphasised, and substantially more driven by other considerations including team-location preferences, transport accessibility for distributed workers, and what one tech firm executive described to me last year as, quote, “the broader question of what kind of place we want our occasional in-person work to happen in.”
The other considerations, when added to the reduced floor-space requirements, produced relocation calculations that the major commercial-district developments did not, in nearly every case, optimise for. The developments were optimised for the pre-pandemic operating model. The post-pandemic operating model has, in operational practice, sought different kinds of locations.
What The 25 Percent Have Done
The 25 percent who have relocated to smaller offices outside the major commercial districts have, in their specific location choices, exhibited a particular pattern. The pattern emphasises walkability, neighbourhood context, ground-floor retail accessibility, and what one founder I interviewed described as, quote, “the kind of place where the team actually wants to spend its in-person days.” The pattern is, in operational terms, substantially different from the pattern that drove the original Shoreditch tech-quarter formation in the early 2010s.
The original Shoreditch pattern emphasised proximity to other tech firms, easy access to tech-focused services and events, and what tech-ecosystem analysts at the time described as, quote, “the agglomeration economies of co-located emerging-firm clusters.” The current pattern, by contrast, emphasises team-amenity considerations that are, in operational terms, substantially independent of the agglomeration economies that produced the original cluster.
The shift in the pattern reflects, on the available evidence, a broader maturation of the relevant firms beyond the early-stage growth phase that the agglomeration economies were most useful for. The maturation is, in itself, the standard trajectory of tech firms across their early years. What is unusual is the speed at which the post-pandemic operating model has accelerated the maturation, with corresponding effects on the location preferences that drive the firms’ relocation decisions.
What This Means For Shoreditch
What this means for Shoreditch, on careful examination, is that the area’s identity as a tech quarter is undergoing a more substantial transformation than the property press narratives have captured. The 31 percent who have remained in Shoreditch through lease renewals are not, in any straightforward sense, the residual tech presence that the forecast model implied would remain. They are, in operational terms, a self-selected cohort whose specific operational requirements continue to be served by Shoreditch’s specific characteristics.
The self-selected cohort tends to include, on the available patterns, firms that have specific reasons to value Shoreditch’s continued ecosystem characteristics, firms that have specific reasons to value Shoreditch’s continued amenity characteristics, and firms that have made specific accommodations to the area’s elevated rent structure that other firms have, in nearly every case, not been willing to make.
The cohort is, accordingly, smaller than the original tech-quarter population but is, in some honest accounting, more deeply committed to Shoreditch as a specific location than the original population was. The deeper commitment produces, in operational terms, an area whose tech identity is, paradoxically, more substantively rooted even as it is, in headline terms, smaller.
An ongoing analysis at The London Standard has examined the broader implications for east London commercial property.
What The 25 Percent Reveal
What the 25 percent who have relocated to small offices outside the major commercial districts reveal, more broadly, is the emergence of a substantially distributed pattern of London tech presence that the previous decade’s models did not contemplate. The pattern includes substantial tech-firm presence in inner-North London neighbourhoods that previously had limited tech presence, substantial tech-firm presence in converted residential and small commercial properties, and substantial tech-firm presence in arrangements that combine reduced physical office presence with broader distributed-team operations.
The distributed pattern is, by every honest reading, more resilient than the concentrated cluster pattern was. The distributed pattern is also, by every honest reading, less visible to the standard property and tech analysts whose operational frames are based on cluster-tracking methodologies.
What I Think Will Happen Next
What I think will happen next, on the basis of the patterns I have been observing, is that the distributed pattern will continue to develop across the next several years. The major commercial-district developments will, in operational practice, continue to receive the larger and more conventionally-structured firms. The smaller and more recently-founded firms will, in operational practice, continue to favour the distributed pattern. The area mix of London tech presence will, accordingly, continue to diverge from the cluster pattern that dominated the previous decade.
The divergence is, in some honest accounting, the most consequential structural change in the London tech ecosystem of the current decade. The change has occurred largely without the property press’s full attention, owing to the analytical-framework limitations described above. The change will, by every honest reading, become substantially more visible across the next several years as its cumulative effects accumulate. More from Cyndi Himmelstiere.
Related at Reductress.
SOURCE: https://bohiney.com/shoreditch-tech-migration-opposite-direction/
