Tech companies’ unique ability to scale rapidly is giving many entrepreneurs a property headache.
Just look at taxi app Uber, which was only founded in 2009 but has since extended its reach to almost 700 cities in 83 countries.
Richard Bertram, head of business development, at office developer TSK, explained the key issues at a property tech roundtable sponsored by GL Hearn.
“I look after 22 large corporate tech clients around the North of England. What I see is that they grow so fast,” he said.
“They have the ability to scale globally and by different categories and that gives them a property headache. Do they buy or rent? If they buy, that could give them something that’s too small in 18 months.
“It comes down to scale. Once a business has scaled up, they have the opportunity to buy, because they know the size, they can buy big and expand into it. If you’re a smaller company, you don’t have the resources to do that – you have to rent.
“Larger companies will typically buy and knock it around. You have to remember tenants are creating value for a landlord, so it’s a smart decision if you can buy early.”
One fast-growing UK tech firm is Wi-Fi provider Purple, which now boasts 20 million users worldwide, with deployments in 73 countries and offices based in the U.S., Spain, Chile, Singapore and Australia.
Pete Lee is CFO of the firm, which moved its HQ across Greater Manchester recently.
“We moved from Ashton-Under-Lyne to Oldham, purely and simply for more space,” he said.
“We have 6,500 sq ft now and we will have another 3,500 in three months in the same building.
“We have a five-year lease with a three-year break.”
Purple claims it made 22,000 customers unwittingly sign up to do 1,000 hours of community service recently in return for free Wi-Fi – highlighting the fact that users never read T&Cs.
Colin Shenton, CEO of ‘pay-as-you-go’ shared working space Ziferblat UK and Ireland, offered some context to that situation.
“In the late 1980s typical office lettings were 25 years, no breaks, and you would run screaming into the hills if someone offered you that now,” he said.
“From a landlord’s point of view, you want the strongest possible covenant, you want to know you’re going to get paid, you want the longest possible lease, your friends at the bank want to be certain you can pay the mortgage forevermore – but that model has changed completely.
“We now recognise that shorter leases are the way to go. The gym industry has moved in a similar way: they’ve moved from 12-month contracts and ‘don’t you dare leave’ to what is effectively pay-as-you-go.”