Scale-up Challenges: Finding room to grow

As Scale-up Enabler for the West of England, I have been surprised by the depth and breadth of concern raised about the availability of suitable office space which is accessible to fast-growing businesses in the region. This article attempts to summarise the nature of the problem, to identify some of the existing support structures and to explore potential responses.

This article provides a snapshot of a conversation that has been going on in pockets across the region for at least 18 months. Now seems as good a time as any to bring the conversation into the open – if you are interested, please join us at the forthcoming Scale-up Briefing event in November(further information below).

What is the issue?

There are a large number of co-working spaces, incubators and innovation centres in the region – these provide a great experience – bringing together like-minded companies/individuals in a high quality workspace. However, these spaces usually cater for businesses with 1 – 10 employees, and often up to c. 15 and when these companies want to expand further, they have to look elsewhere.

Unfortunately, elsewhere the picture isn’t so full of options and welcoming community managers/hosts. These companies need to look on the open market because there is a distinct lack of ‘multi-occupancy space’ which is big enough for them. And where these spaces do exist, managers of multi-occupancy spaces frequently report real challenges optimising movement through their office space. I hear stories of managers who have a constant waiting list and who are able to let spaces, or take people onto their programme, the same day that space becomes available. Most alarmingly I hear stories of larger multi-occupancy spaces where larger offices never become available because their occupants can’t find ‘grow-on’ space in the locality – which means there is no movement through the space, economic development is stifled and the waiting list never gets any shorter.

Individual business owners describe a great deal of frustration in identifying, negotiating and securing suitable spaces. The challenges they face are wide and varied (depending on their circumstances), and can be categorised against three key themes:

Affordability of space

1. Cost – due to the highly competitive nature of office space in the region, agents and landlords can command high rates which can be out of the reach of scale-up businesses and leave those with deeper pockets in the driving seat of negotiations.
2. The terms of lease often include a lack of flexibility to accommodate growth, a lack of break clause(s), an unmanageable length and/or a hefty deposit. Other areas around the world offer 12 month leases on much more flexible terms.
3. In addition, more traditional landlords will often stipulate a covenant which is very difficult for a scale-up business to meet (this is an independent assessment of the potential tenant’s financial stability and profitability made on the basis of accounts and references).
4. Much space across the city is offered on per desk basis – this is particularly prohibitive for those companies who require workshop space in addition to desks.
5. There is a strong preferential bias towards central office space (particularly BS1 postcodes) but these offices can command the highest prices and the most challenging covenants.

Availability

1. 1. The office space market is considered opaque – scale-up businesses are busy building their plane (their business) and flying it, so (to stretch the analogy), they have little time to scope out (find, select, negotiate, agree) the best runway for landing (officespace). Even those who pay for and commission agents to act on their behalf are not able to find space in a timely manner due to lack of availability. One agent told a local business that there are ‘only 5 possible spaces that meet your requirements across the city.’
   2. There is an abundance of co-working and start-up space (including offices for up to 8 people) but a distinct lack of office space for companies of 10 – 50 people with any degree of flexibility.
   3. Whilst there are an abundance of ‘to let’ signs around the city, these spaces are often too expensive (see above), too small, or will not let to multi occupancy space managers who struggle to find spaces that will offer >1year lease for such a purpose. One London based firm would love to enter Bristol market but can’t find space on suitable terms.
   4. There are many multiple occupancy space management companies (WeWork, Central Working, Codebase, Orega, DeskLodge, Forward Space, Regus, BizSpace etc.) of which only few operate effectively in the region (Oxford Innovation/Future Space (who offer office space plus support), DeskLodge, Forward Space, and Orega).
   5. The negotiation process is lengthy – often taking up to 6 months to secure an office space which is a particularly long time in the life of a scale-up business growing at minimum 20% per annum.
   6. There is a lack of development – regionally, Grade B space is declining in volume and there is a lack of new buildings (particularly those built speculatively) – this drives up rental prices and encourages longer leases. This trend is exacerbated by the lack of confidence in the market which stems from Brexit but at this stage we can’t be certain of the wider impact of Brexit, many people anticipate further decline in the volume of development.

Suitability

1. 1. Scale-up businesses have high expectations in terms of quality of fit-out, location, flexibility and ‘personality’ of the space which is not always met by multi-occupancy managers. Their expectations are set high by the great quality of co-working/ start-up spaces in the region.
   2. Scale-up businesses benefit from the opportunity to mix and mingle with others – to share experiences and challenges.
   3. Scale-up businesses expect/anticipate that their new office will have a degree of provision (wifi, phone lines etc.) – their understanding of the office market is limited.

What works in the region?

There are some great initiatives in the region that are already working to help scale-up businesses find the ‘grow-on’ space that they need:

• Invest Bristol & Bath help businesses from selected sectors to find suitable office and workshop spaces.
• DeskLodge – have created a flexible, managed space which accommodates businesses from 1 – 50 people in Temple Way (and other cities)
• Forward Space – the spaces provided and managed by Forward Space support growing businesses with flexible rates.
• Many more, with added support and/or selection criteria, including Future Space, Engine Shed, Bristol and Bath Science Park and Temple Studios. Unfortunately though, demand continues to outweigh supply.

Inspiration elsewhere

• The recently launched TechSpace in London offers highly flexible office space designed specifically to help fast growing businesses.
• British Land have also launched a new sub brand – Storey which provides flexible workspace for ambitious and growing businesses as well as larger organisations seeking additional space on flexible terms. Their first offer is in Shoreditch, London.
• WeWork – such is the demand for flexible, scale-up suitable workspaces that multi-occupancy management companies such as WeWork who offer a highly flexible and well-designed space) can command a significant levy to enter a new location such as Bristol or Bath.
• Runway East – connects and hosts London’s community of startups and scale-ups with events, coworking and private offices.

What already exists?

I have made an attempt to capture the existing co-working, multi-occupancy, managed workspaces and incubators/accelerators in the West of England in this google doc (work in progress). You can also interrogate the location of scale-up businesses using this map created by the Scale-up Institute.

How can we respond to this challenge?

There are a number of potential responses to this challenge. In the first instance, we want to bring the community together to talk about the issue – for both agents/landlords and for scale-up businesses. Join us at the Scale-up Briefing in November where we will be exploring the challenges and thinking about solutions.

• Can we create an openly available schedule of available office space (that suit Scale Up needs) so that all parties can see what is available, where?
• Is there an investor/organisation willing to create a 40,000 – 80,000 sq ft space for multiple scale-up businesses?
  • Is there a parallel case to make to BCC / Temple Quarter Enterprise Zone to support this?
• Can we attract/support Orega, WeWork or Central Working to set-up suitable spaces which reflect the needs and requirements of local businesses?
• How can we make Bradley Stoke/hinterland areas more appealing to scale-up businesses? Is there a way to make it into a more appealing and extend the Bristol energy so that the available space can be better utilised? How can we encourage the existing spaces (e.g. Bizspace) to support larger businesses? This will ease pressure on roads into Bristol and encourage companies to recruit more from South Gloucestershire and the M4 corridor from those groups who find it difficult and expensive to commute into central Bristol.
• An online product/toolkit to manage scale-up business expectations and to help scale-up businesses better understand the process of securing new office space.
• Could we employ a solution like that utilised in Leeds where coworking/workspaces attract rates relief.

Want to join the conversation?

This article is not yet a complete story – I have spoken to a lot of people but I’m sure there are more insights, challenges and great solutions that I don’t know about yet. And this article is simply my assimilation of what I’ve heard – with a few extra contributions from those who have proofed it.

I am particularly keen to hear from scale-up businesses who are currently searching for office space, agents and landlords who would like to highlight an existing response to these challenges and/or be part of a new solution to this challenge and any other regional stakeholders who are interested in this issue – my details are below.

Please join us to explore this challenge and potential responses at the ‘Scale-up Briefing: Room for Growth’ event at the Engine Shed on Wednesday 29th November 4-6pm: https://scale-up-briefing-room-for-growth.eventbrite.co.uk

N.B. This article has largely drawn on conversations in and around the Bristol area. I’m keen to hear other people’s experiences across the West of England – and know that Bath, for example, has a real dearth of both co-working and ‘grow-on’ space which you can find out more about at this forthcoming event: https://www.creativebath.org/events/view/318 organised by Creative Bath.

This blog series tells the story of the Scale-up Enabler, Briony Phillips. Briony joined the Engine Shed team on a 1 year contract in June 2017 funded by Business West, Engine Shed, The University of Bristol and the West of England Growth Hub. This group have a shared ambition – first, to identify scale-up businesses in the West of England region and to better understand their challenges and second, to design, facilitate and support initiatives that will make it easier for businesses to scale-up more effectively – in the long term.

Briony – Scale-up Enabler
briony.phillips@engine-shed.co.uk
@BrionyPhi1