South East: Office
Decades of tech investment gives South East resilience against rise of the machines
The impact of new technology has significant implications for real estate, with digital evolution driving a growing volume of occupier and investor activity. And while an increasingly automated world has the potential to adversely impact some local economies, the presence of a strong tech sector could play a key role in ensuring economic resilience at a local level.
Data from Oxford Economics indicates UK GVA for the Information and Communication sector totalled £111bn in 2017, projected to reach £126bn by 2022. Contrary to popular opinion, this activity is not confined to London. In fact, the wider South East enjoys a higher share of technology-related employment than the capital, relative to the size of its economy. The Information and Communication sector’s share of employment stands at 13.2% within the Thames Valley Berkshire local enterprise partnership, compared to London at 8% and Great Britain at 4.3% (NOMIS, 2016).
Within the Thames Valley, Reading and Bracknell possess the highest shares of Information and Communication sector employment in the country reaching 16.7% and 14.3% respectively. No wonder the Thames Valley is often referred to as the UK’s answer to Silicon Valley.
The South East’s long-standing association with the tech sector traces its roots back to the 1980’s and early 1990’s, when several large US technology firms established a significant office presence in out-of-town business parks, drawn by the area’s excellent connections to both Heathrow airport and Central London. The recent House of Commons approval for the expansion of Heathrow airport alongside the future completion of Crossrail will only add to the region’s appeal.
However, large corporates such as Microsoft and Oracle are far from the only tech presence. The South East’s strong talent pool, improving infrastructure and rental discount to London has encouraged the formation of a digital cluster of tech companies, encompassing everything from large corporates to SMEs and start-ups working across tech sub-sectors from digital media to software development, hardware and cyber security.
As a significant employment provider this diverse digital cluster is also a key driver of demand for office space. While appetite remains for larger out-of-town floor plates, particularly from multinational businesses, these are no longer the sole choice for tech firms. Since the 1990’s, a vastly improved town centre offering has opened up central locations to occupiers, a key example of which is Reading town centre, which has recorded recent lettings to telecoms firms Ericsson and MBNL. Looking ahead, tech-related demand is expected to remain a core driver in the South East, with several key requirements currently in the market for Virgin Media, Samsung and Orange.
This investment has also meant that investors have had to consider the demographic of tech workers when developing office space. Although there is no ‘one size fits all’ approach, with many larger firms such as Virgin still preferring traditional office space, there has been a move towards creating more contemporary, Shoreditch-style floor plates for tech SMEs who are trying to attract a younger workforce.
More recently, the co-working boom, which has characterised the Central London take-up story since 2016, has started to filter through to the wider South East, with operators perhaps poised to capitalise on the region’s already strong pool of tech start-ups and SMEs. The Regus brand “Spaces”, among others, has already taken a number of sites in core South-East locations over 2017-18 including just under 40,000 sq ft at McKay Securities’ 9 Greyfriars scheme in central Reading.
Looking further ahead, as automation and digital innovation begin to alter the status quo, a solid tech-related economy points not only to growth and innovation but to resilience. There have been numerous studies on the professions most at risk from automation and, while the risk varies from role to role, the Information and Communication sector as a whole is thought to be at lower risk than many industrial sectors. The South East’s high exposure to this sector could therefore protect the region from the worst effects of automation-related job loss.
This anticipated resilience, coupled with the market’s current strong take-up, supply and investment fundamentals, all point to future growth and inward investment for the South East and its commercial real estate market.
Senior Research Analyst
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