While the importance of banks in the City of London has been declining, technology groups have been expanding their presence in the Square Mile, the Financial Times reported on October 21, quoting data which indicates that technology-based businesses have become the largest buyers of new floor space in the City.
**Tech Newcomers in the City**
The FT reports that technology, media and telecom (TMT) groups leased 931,000 square feet of office space in the City during the first three quarters of 2012. This is a 40 percent increase relative to the same period in 2011, with figures by the property group Knight Frank showing that financial institutions have taken up 620,000 square feet of City space.
“This is part of a global phenomenon, as we are seeing rising TMT demand being reported in Chicago, New York, Dublin and Berlin, as well as London,” points out James Roberts, head of commercial research at Knight Frank, as quoted by the FT. “The City is emerging as a focus point as it has the transport, telecommunications, and power infrastructure to support this growing sector.”
Among the deals which have contributed to the growing presence of the tech sector in the Square Mile are Skype taking 88,000 sq ft at 2 Waterhouse Square, the communications group Weber Shandwick acquiring 65,000 sq ft in the same building, Oracle (NASDAQ:ORCL) taking 22,000 sq ft at 1 South Place, and Yammer signing on 13,000 sq ft at 80 Great Eastern Street.
!m[Importance Of Banks In The City Of London Declining ](/uploads/story/614/thumbs/pic1_inline.png)“We are gradually seeing the London economy reweight away from finance, and this is playing out in the City office market with the likes of activity from Mimecast, Skype and Weber Shandwick,” notes Bradley Baker, Knight Frank’s head of central London tenant representation.
In addition, the FT reports that Google (NASDAQ:GOOG) signed a £550 million deal to build a new headquarters next to Kings Cross station. The project is expected to contribute to the redevelopment of the 67 acres of disused railway yards and wasteland located behind the station.
**Bankers Relocating to Canary Wharf**
Meanwhile, financial institutions have been deserting the City and moving to cheaper locations such as Canary Wharf, so as to respond to falling staff numbers and pressure to cut costs. The FT reports that since 2009, rents in the City have risen from £42.50 per sq ft to approximately £55 per sq ft in 2012. Covent Garden rents have jumped from £45 per sq ft to £65, whereas rents in Mayfair have gone from £65 per sq ft to £95. Prime office rents in Canary Wharf on the other hand are sitting at £35 a sq ft, with major banks such as HSBC (NYSE:HBC) and Barclays (NYSE:BCS) choosing the region for their headquarters.
**Potential Boost to London Commercial Property**
In addition to the major tech deals for City office space, data by BNP Paribas Real Estate show that the TMT sector is also likely to absorb an additional 1.2 million sq ft by 2012, or an area twice the size of London’s tallest skyscraper the Shard. The potential increase in office space demand is expected to boost London’s commercial property market which has been suffering from a decline in uptake from other sectors.