How small businesses are fighting London’s extortionate office rents

London enjoys a worldwide reputation of a city that’s open to business, from huge internationals to endeavouring shopkeepers. However, the UK capital is now the third most expensive city in the world for office space, behind just New York and Hong Kong, and rising rents look to threaten that reputation.
Prime Minister Theresa May reaffirmed the government’s support for small business: “From dynamic startups to established family firms, our small and medium sized businesses are the backbone of our country.” May went on to say that her government aimed “to build an economy that works for all, and that means working with, and listening to, smaller firms.”

Although that rhetoric will come as welcome news to some, it doesn’t directly and explicitly take on the problem at the heart of the UK’s capital. That’s the worry of London Mayor Sadiq Khan, who argued that the very nature of London’s high streets is under threat. Independent and family run high street stores are amongst those threatened by the expense of rent in the capital. SME’s and startups are also finding themselves victims of the rent rise.

Small businesses are struggling to survive in the capital

London has always been an expensive place to have a business, but in the past costs have been counterbalanced by the advantages being London-based offers. However, for many that balance has shifted too far, and for many small businesses, it’s their offices that have become the problem.

Not only are rents in the capital rising at an unsustainable rate, increasing business rates is another burden hampering the growth of startups and SME’s. Nowhere is this more of a problem than in central London, as The Guardian noted, “A sharp rise in business rates for offices in the City of London is threatening to undermine the Square Mile’s drive to remain a key financial centre in Europe after Brexit.”

The figures support these concerns. In the next five years, the business rates bill for offices in the City will rise by £1.4bn. Although bigger businesses, with bigger offices, may be able to handle this rise, it’s the small businesses, restaurants and cafes in the area that will struggle, something which London Mayor Sadiq Khan called ‘unacceptable’.

No wonder then that London’s reputation as a business capital has been replaced by one of a deathtrap for startups. Unfortunately, the figures back this up. London has the lowest survival rate for start-ups of anywhere across the United Kingdom.

But small businesses are fighting back against rising rent costs

So where do London’s small businesses go? Out of business or elsewhere? Interestingly, the rent crisis has not simply forced all small businesses out of London – although some specific areas in the capital have become less popular with the SME’s and startups that once occupied them – but completely altered the way small businesses work in London.

More specifically, it’s where they work in the capital that’s changing. The rising rent for office space in the capital correlates with the rise in demand for alternative workspaces such as serviced offices and coworking spaces.

According to director of City Office, Simeon Howard, demand for serviced offices in London has been fuelled by startups: “Even though the vast majority of people still don’t know this offering exists, we’ve seen interest levels double over the last two years.”

Other businesses are working from a home address or elsewhere, opting for a virtual office in London. This theory is put forward by office space provider Landmark Workspace. They argue that virtual offices are attractive to small businesses as it gives the business itself a London address, whilst they can work from a cheaper address further away from zone one. According to Landmark, virtual offices are popular because they offer “the support and infrastructure of a major corporation, but without the cost.”

These new workspaces mean that although London remains attractive to small businesses, a traditional London office doesn’t. According to Carter Jones: “Businesses throughout Central London are exploiting advances in mobile data/telecoms technology to reduce their property footprint and operating costs: remote working and hot desking are now established trends among occupiers.”

What does the future hold?

Although for now, alternative workspaces have proved a solution for many small businesses through the capital, the future is by no means a certainty. Last summer the Independent claimed that firms were “already on the hunt for the ‘new London’ after the UK’s decision to leave the EU. Other European cities such as Berlin and Amsterdam have actively tried to persuade UK-based startups to abandon ship.

Of course, not all businesses can leave London, or work from new alternative office spaces. These businesses are the most noticeable by their absence due to their presence in the heart of local communities, and it’s these businesses that may lose out in the future.

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