'Barclays could be replaced by Facebook'
The City as we know it is changing. As financial institutions struggle, technology, media and telecommunications companies (TMTs) are experiencing exponential growth rates. And it is the latter that are now propping up London's commercial property sector.
According to award-winning agency DeVono, which acts exclusively on behalf of tenants not landlords, TMTs are now the most active occupiers in London. They accounted for 24 per cent of take-ups in 2011 compared to 12 per cent the year before, greater than the banking, finance, oil and gas sectors.
What's more, these TMTs which include Google, Facebook and Microsoft, are looking beyond their traditional home in London's West End to more affordable parts of the capital such as Farringdon and Spitalfields, and in many cases replacing financial firms. Groupon recently took over 40,000 sq feet worth of Bank of America Merrill Lynch's offices in Swan Lane, EC4. This trend could, believe DeVono co-directors Robert Leigh and Adam Landau, pave the way for a transformation in the dynamics of the City.
Property consultant Mr Landau, 33, says: "It's not happening instantly but the City is absolutely changing. It could take decades. You have to remember that some of these industries are archaic; banking, accountancy, law and insurance, and it could take years to change. But change is happening around us and we are spotting it.
"Before the recession hit, financial institutions and hedge funds formed one of the most active and growing sectors in London's world-renowned commercial property sector. These industries are in decline leaving room for a new breed of occupiers, TMTs.
Where banks are firing, TMTs are hiring
"Not only are these industries occupying top-quality grade-A office space but they are seeking to change the layout and space requirements of London's offices to suit their requirements." Important factors include large floor plates, open plan, raised floors and a high-level of power supply.
Although Mr Leigh, 32, acknowledges that rents in prime Central London locations such as Mayfair and St James have come down in the recession, he says they are still significantly higher than the perimeters. "Landlords have realised that the economy isn't as stable as it was so they are being sensible about letting their space, not holding out for the highest rate. Some parts of the West End are achieving close to £100 per sq ft - Mayfair is achieving £102 per sq ft compared about £240 per sq ft in 2007, but the City borders are much cheaper; locations in Spitalfields, Farringdon, London Bridge and Clerkenwell could be as low as £25 per sq ft or in the £60s at the top end in Holborn."
TMTs are seeking these secondary City-fringe locations.
Mr Leigh says: "Everyone has gravitated towards the Old Street/Silicon Roundabout vicinity because it is the cheapest location in Central London's zone one by far. Traditionally it was a second choice of location, now it's where businesses want to be.
"These areas are fast becoming the centre of the technology hub in the UK - and Europe," adds Mr Landau. There are hundreds of technology firms situated near the Silicon Roundabout compared to 15 in 2007 and according to Savills, London's TMT workforce is expected to grow by 40,000 to top 300,000 by 2016, resulting in the need for a further four million sq ft.
"Where banks are firing, TMTs are hiring." The duo believe that in time the capital will no longer be known for finance but for its TMTs. "I think there's a strong possibility this will happen," says Mr Landau. "Look at the Canary Wharf skyline and you see Citibank, Barclays and Credit Suisse. There is a strong possibility that soon we will we see Microsoft, Apple and Facebook.
"Although London is the number two hub in the world for banking and finance I think we will see shrinkage in this country with growth in Asia. You only have to look at the 10,000 people supposedly being let go at the banks at the moment. 10,000 sq ft is a lot of office space and can be taken up by someone new."
"All the data centres available at Canary Wharf make it a very serious consideration for TMTs," adds Mr Leigh.
DeVono was set up by Mr Leigh in 2003 to work exclusively on behalf of tenants seeking to rent office space in London. Last year the company moved 97 businesses - believed to be the largest number ever by a commercial property agency in a year. Clients include E.On, 118 188, Manchester United, Topps Tiles and Toshiba.
A former JFS pupil, Mr Leigh raised £40,000 through the government-backed Small Firms Loan Guarantee Scheme, to invest in DeVono, together with £20,000 of his own money.
Mr Landau, a former consumer-software distributor, joined in 2004. The company, based on the Haymarket, has since placed close to 500 tenants and hopes to achieve more than 100 this year - 20 per cent up on last year. They remain one of the only commercial agencies companies to act only for tenants. It now also represents retailers and has expanded its services to include a dedicated purchasing, project management and consultancy team.
What will happen to City-fringe rents as demand for these sites increase? "In the next five-to-10 years, those rents will increase to similar levels of other prime London locations and then a new area will pop up, maybe Whitechapel or Kings Cross." As for other trends he says: "I think we will see a massive increase in oil and gas businesses coming to London. They like to be listed on the Stock Exchange but with so many restrictions now for financial businesses, they might decide to open offices elsewhere outside of London."