Member Article

Startups losing faith in London as a result of rising rent prices

‘The honeymoon is over’ for startups in London after just twelve months, according to research from Sussex Innovation Croydon, the business incubation network wholly owned by the University of Sussex.

The study into the attitudes of 500 small business leaders across London and South East reveals a significant shift in attitudes after a year of operation.

The likelihood of leaving London jumps by almost half within a year of start-up, from 47% considering re-location to 66%. The research shows it takes another eight years of operation for attitudes to return to the same balance as during the first 12 months.

Rising property rents is a key contributing factor to the switch of attitudes, says Sussex Innovation Croydon. Amongst firms established for less than 12 months, a minority (37%) agreed property rents would hold back growth, this switches to a majority (62%) after a year, declining to 53% after three to five years, and back to a minority (31%) after 9 years or more.

The report saw a similarly a stark doubling after a year, rising from 8% to 20%, in the number feeling they were held back by a lack of proximity to like-minded business.

To address such challenges, the research is to be used to shape the coaching offered at Sussex Innovation’s Croydon incubator hub, which opens this autumn.

The centre will provide a base for up to 30 high-growth potential companies with over 300 employees, and support more than 100 local businesses through its network.

Mike Herd, Executive Director of Sussex Innovation at the University of Sussex, said: “Our findings reflect the start-up journey; a London address provides kudos and contacts when you begin but a year later, the honeymoon is over as bills start to flow in.

“In a reverse of the seven year itch, our polling shows small firms fall back in love with London only once they’re well established. If London is to hang on to more growth businesses it needs to look again at business rates and affordability.”

The research reflects the importance such business coaching has on the success of start-up ventures. Herd, concludes: “The start-up mentality is something we’ve long studied. A classic response to cashflow problems is to seek savings from the bottom line, but this is often a false economy, what you save on rent you lose in connections and support networks.

“The world is full of people with ideas and low on experience, support networks such as our own can bridge that gap, ensuring ideas become successful commercial innovations. As we open our first off-campus incubator, it is important we adjust to the mind-set of London entrepreneurs.”

Philip Johnson, Director of business support service Locate East Sussex, said: “Although there is an element of prestige locating a start-up in London it doesn’t take long for companies to realise that the high costs are unsustainable. “In East Sussex, we have a low cost base for commercial property and the range of business parks and commercial developments on offer is growing ever bigger with the opening of new multi-million pound developments. “To support this we have good access to transport hubs, an expanding superfast broadband network and excellent business networks. Start-ups are realising that all these factors add up to East Sussex being a fantastic place to work and live, and are moving out of pricey cities like London and Brighton.”

This was posted in Bdaily's Members' News section by Ellen Forster .