Matthew Twist moved his startup company from East London to Newcastle-upon-Tyne, nearly to the furthest northern corner of England, because paying three thousand pounds for an office space was making a dent on the revenue from his nascent business. In the UK, there are other entrepreneurs that gave up on working out of London altogether. Exclusive new data from commercial property agent Stirling Ackroyd has found that the number of registered technology companies in the EC1V postcode – Tech City heartland – dropped by 227 in a six months period, from 2,480 in the second quarter of 2015 to 2,421 in Q3 and 2,253 in Q4, a 10.1% fall over the period, The Guardian reports.
Even when startups do find a place in London they are prepared to afford, there is the problem of signing long-term lease agreements. Taavet Hinrikus, who founded the fast-growing international- moneytransfer service TransferWise, told Quartz that “Most landlords want you to sign a five-year lease.” “In five years’ time, I either need room for 200 people or none at all. But today I can’t afford to sign a lease for 200 people.”
The situation is similar elsewhere in Europe with each country or area becoming tougher for tech startups to rent in the desired locality. The startup scene in Greece, characterized as a “microcosm of Silicon Valley,” struggles now to stay on course in the face of heavy blow of costs, including paying weekly or monthly rent. The Cube, an Athens based co-working space and incubator, has entrepreneurs coming up to its founder for advice on ‘how to pay rent’, Reuters journalist Tania Karas reports.
“Within the span of one hour last week, three different startup founders stopped in to seek advice from entrepreneur Stavros Messinis, who started The Cube, on how to pay their rent, employees and bills. “See how much time we’re wasting?” Messinis said when they finished. “We’ve spent 80 percent of our time on this in the last week.”” – Karas reports in ‘Greece’s Silicon Valley, an economic bright spot, fights to survive crisis.’
In the United States startups are fighting to sustain, despite the venture capital boom in the last few years. Venture capital funding in the US over the last five years has added up to an astounding $238 billion with rise of, even more astoundingly, 200 companies that are “unicorns” – ie valued at more than a billion dollars each, reports James Surowiecki in MIT Technology Review. And yet, economic researchers have documented that the percentage of US firms that were less than a year old fell by almost half between 1978 and 2011. Economists Ian Hathaway and Robert Litan notes in their 2014 Brookings Institution paper that the decline “has been documented across a broad range of sectors in the U.S. economy, even in high-tech,” Surowiecki reports.
Close to home, in neighbouring India, similar struggles have given rise to and accelerated the culture of co-working space. Estimated to reach a staggering 11,500 tech startups by 2020, India’s booming startup culture veered squarely toward the co-working strategy to respond to the need need for low-cost and flexible workspaces, Madhura Karnik reports in Quartz India. Just in 2016, co-working space providers took on lease approximately 1.2 million square feet of office space, according to Colliers International, a real estate consultancy. The high demand for the flexible working space prompted American startup WeWork to enter the market in India.
Back in the UK, small companies and individuals are leaning towards similar solutions. In east London, from where many small startups had to move, Jayna Cavendish converted a warehouse into a common-workspace that targets a growing army of freelance workers who can pay £17.20 a day and avoid getting knocked out by high office rent, Dougal Shaw in BBC News.
To facilitate Jayna’s endevour, new companies like Spacehop are using internet technology to connect homeowners to business people, creating a network of “on demand” daytime workplaces. With the classic ‘seeing a problem and providing solutions’ approach, Spacehop aims to make the most of “idle assets” that could be put to work and benefit owners and provide much sought after solutions to customers.
In France OfficeRiders promises to make “your home, their office”. Founded in 2014, the company handled over 1,300 bookings, with monthly growth of 20-30 percent, the company’s founder Florian Delifer told BBC.
In China when more than 60 startups, with over 300 employees, were forced to move out of their offices in Shenzhen because their incubators fell behind on rent, incubators in Shenzhen immediately reached out to these startup teams, helping all of them find new offices, with some being cheaper or even rent-free, Chai Hua reports in China Daily.
Analysts observed, however, that the seemingly positive outcome of finding the alternative solution may not be a good thing. Firebird Institution, one of the Shenzhen-based incubator to fall victim to the soaring rental costs, had to put off rent payments several times this year and owed the property company more than 500,000 yuan (USD76,400), Firebird founder Chen Pengfu told China daily. Chen blames high rental costs as one of the biggest difficulties currently faced by incubators and startups.
On the whole, startups across the world are rapidly moving toward alternative solutions to ward off the curse of unsustainable rent. Funded shared and short-term housing startups are springing up across the globe, from easter Asia to Europe to Americas. Like India, businesses for providing innovative solutions to this problem are growing and could eventually attract much larger investment and valuations.
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