Tech firms overtake banks in European office rentals

Reuters News
Posted: Nov 27, 2012 12:49 PM
Tech firms overtake banks in European office rentals

By Tom Bill

LONDON (Reuters) - Triton Court, a century-old old art deco building on London's Finsbury Square, is a good example of how the financial crisis is transforming demand for commercial property in Europe.

Its grand, arched entrance faces the City's financial heartland while a scruffy, narrow street runs along the back in a gritty area containing technology firms such as Google and Mind Candy, creator of online game Moshi Monsters.

Resolution Property paid 43 million pounds ($69 million) for the empty block in June. As part of a 150 million pound revamp it will switch the entrance to the back and reopen in 2014, turning away from finance in favor of technology companies.

The redesign, which includes renaming the building Alphabeta, will let staff cycle through the reception area en route to amenities including a basketball court, film studio and roof terraces.

"Financial services is in a state of retreat," said Robert Wolstenholme, a partner at Resolution. "The creative world does not feel comfortable sharing a building with bankers. So, we had to reposition it physically and conceptually."

Technology and telecom (T&T) companies rented more new office space in Europe in the first half than banking and finance firms for the first time, a report by property consultancy CBRE said on Tuesday.

Growing use of smartphones, tablet computers and cloud computing is driving demand, CBRE said, citing a forecast from technology researcher Gartner that global sales of tablet computers such as Apple's iPad will triple to 326 million units in 2015.

Companies such as Amazon, LinkedIn, Skype and Russian email service Mail.Ru rented 520,000 square meters of space versus 420,000 for finance and banking over the period, placing the T&T sector third behind manufacturing and energy, commercial services and leisure.

Though T&T companies are not immune to the downturn, the amount of rented office space recovered to just below pre-crash levels in 2011 with Berlin, Dublin and London leading the way.

"Some of the most successful companies are harvesting the fruits of their innovation and have hoarded substantial cash reserves despite the economic turmoil which they can use to fund their growth," CBRE said.

Banks, by contrast, are slashing staff, selling buildings and leasing more modest premises after being the biggest renters of office space prior to the crash.

Triton Court was built by Royal London Insurance and used as its HQ from 1902-30. Past tenants include National Westminster Bank - now part of Royal Bank of Scotland, Toronto Dominion Bank and UBS.

Wolstenholme said its redevelopment "is all about attracting bright young employees. Taking a square corporate box in the middle of the financial district is against everything they would want to do."

The British government has been keen to push the credentials of London as a home for technology companies, coining the term Silicon Roundabout for an area in east London several hundred meters north of Triton Court.

A nearby Resolution property, which will be occupied by Mind Candy next year, has astro turf instead of carpet tiles, treehouses and an 80,000 pound slide between two floors.

Meanwhile firms such as Apple, Google and IBM have been attracted to Dublin by low corporation tax, while a scarcity of sought-after loft space in Berlin is forcing tech companies to look at more traditional buildings, CBRE said.

Despite the fancy fit-outs, today's tech companies have learned the lessons of the dotcom bubble that burst in 2000, said John Burns, chief executive of Derwent London, whose tenants include Cisco and Expedia.

Values of many start-up technology and internet-related companies experienced meteoric growth over several years in a misplaced bet that profit would materialize.

"These are now proper grown-up companies with business plans and good financial discipline," Burns said.

"If you came out of university with a chemistry degree today would you go to a bank or somewhere you can do better financially and not have to wear a collar and tie?"

(Editing by Dan Lalor)