Small Business

High rent drives London’s start-ups south


High rents could mean that London's answer to Silicon Valley might soon lose its influence as new businesses head south, according to a new survey.

Some 15,620 new businesses opened in and around "Silicon Roundabout" – which spans from Old Street roundabout across Shoreditch -- in the year to the end of March 2014, according to research by accountancy group UHY Hacker Young.

The Old Street roundabout, which has been dubbed 'Silicon Roundabout' due to the number of technology companies operating from the area in London.
Oli Scarff | Getty Images

But the number of new businesses was slightly lower than the previous year when 15,720 new businesses launched, and could signal the start of a shift by start-ups elsewhere.

South London's SE1 postcode, which covers Borough, Bankside and Bermondsey areas south of the River Thames, saw the fastest acceleration in business creation, the survey found. The number of new start-ups increased 13 percent, from 5,190 to 5,850 over the year.

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Colin Jones, partner at UHY Hacker Young, said rising rents around Silicon Roundabouts meant that entrepreneurs were starting to look south to set up shop.

"The area has experienced rapid regeneration in recent years, most notably the development of the Shard, which is attracting the professional and financial services and businesses from the creative industries into the area," he said in a statement.

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"Businesses are benefiting from the close proximity to the City and the West End whilst taking advantage of the lower office rents available in SE1."

Asi Sharabi, co-founder of LostMy.Name, which makes personalized children's' books, is one start-up founder looking to leave the Silicon Roundabout area.

"We're starting to look further east, into Hackney," he told CNBC. "The big names have moved into the Old Street and Shoreditch areas now, which is pushing the smaller players further out."

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Sharabi said it wasn't surprising that the hype surrounding Silicon Roundabout meant rent had risen. "It's too posh here now, really. Start-ups need a bit less hype and more reasonable prices," he added.

'Prestigious district'

But as Sharabi looks to London's East End, some entrepreneurs are being driven west, into prestigious Mayfair. This area – better known for its designer boutiques than tech start-ups – saw a 10 percent in new businesses to 2,020, according to the survey.

It's a trend that has been clocked by former property developer Adam Blaskey, who has opened two venues in Mayfair which provide flexible working space for entrepreneurs.

He said the decision to launch a second The Clubhouse in Mayfair came from growing demand for this type of venue in the area.

"While London's Silicon Roundabout is a hotspot for tech start-ups, Mayfair is attracting many early-stage businesses – including tech - who are attracted by the caché and convenience of a Mayfair address," he told CNBC.

Blaskey said the "prestigious district" appealed to some entrepreneurs because it was in keeping with the aspirations they have for their business.

"Flexible working and meeting spaces such as The Clubhouse allow start-ups and early-stage businesses the chance to have a home in Mayfair, despite the dearth of affordable office space in the area," he added.

As entrepreneurs disperse across the city, London remains the country's start-up center, however. Only three postcodes in UHY Hacker Young's top 20 for new businesses were outside of London, located in Hove, Leeds and Warrington.