Surge in VC investment into UK regions expected to drive growth in flexible office market

We recently conducted some research, in which we found that major cities outside of London saw a sharp rise in venture capital (VC) investment in the final quarter of 2018, rising by 26% to £1.1 billion, based on the rolling 12-month total. With finance raising, particularly for smaller companies and start-ups, a key accelerator of growth, including headcount and expansion, we expect this increase in financial firepower to drive demand for flexible office space.

Whilst we found that overall year-on-year VC investment across the UK is down 10% from £3.1 billion in 2017 to £2.8 billion on 2018, mainly due to political and economic headwinds, there were some cities that saw significant growth during this time period. Newcastle saw the biggest rise of 285% followed by Oxford (131%), Cardiff (52%), Bristol (50%) and Cambridge (33%).

VC investment inflows across the UK is not only a strong indicator of higher growth companies, but it also highlights the emergence of hotspots for start-ups and smaller companies that are expanding, which can directly link to a demand in the flexible office market.

It is no surprise that Central London accounted for the majority of the total VC investment last year at 63%. However, what is interesting is that much of the VC investment outside of the capital is directed at cities with established universities and therefore have a consistent flow of new talent entering the workforce potentially looking to create new businesses of their own or aid the expansion of others.

In terms of take-up, we expect that those cities such as Bristol, Manchester and Cambridge that have seen increased VC investment and are already on the radar of major brand providers, to continue to see good levels of take-up from serviced office providers as they look to expand their presence and capitalise on the areas with fast growing companies that have seen investment flows. This will inevitably enlarge and develop the flexible office offering in those markets.

Our research also highlights the significance of the range of business sectors that have received VC investment as this can determine what type of space they are likely to expand into. For example, cities like Oxford and Cambridge are seeing a significant rise in demand for laboratory space, whilst the more tech-based sectors focus on small private offices and larger self-branded spaces where they can stamp their own identity.

Steven Lang, research director at Savills, says: “Over the last 12 months the ‘traditional’ Technology, Media & Telecoms sector has attracted the lion’s share of VC investment accounting for 25%. However, we are seeing other sectors such as Life Sciences, including Oncology, expanding their appeal, which could start to have a visible impact take-up for flexible laboratory space.”

Read the full press release here.