Business development · 27 July 2015

Small businesses fall out of love with London after a year of being based there

Business owners may underestimate how much of an impact rent will have on their growth prospects
Business owners may underestimate how much of an impact rent will have on their growth prospects

Small businesses which set up in London are questioning the decision after a year, as rising rents prove a dampener for prospects of new firms.

The University of Sussex’s business incubation network Sussex Innovation Croydon explored the attitudes of 500 small business leaders across London and the South East and found that after a year in operation, their opinions on being based in or around the capital changed significantly.

Within 12 months of starting up in London, the likelihood of leaving the area increased from 47 per cent considering relocation to 66 per cent. The research also indicated that the benefits of being based in the capital took a while to be realised – it took another eight years of operation for attitudes to return to the original balance of those during the first year.

Mike Herd, director of Sussex Innovation, said: “Our polling shows small firms fall back in love with London only once they’re well established. If London is to hang onto more growth businesses it needs to look again at business rates and affordability.”

Property rents in London are widely discussed, but it seemed business owners weren’t expecting them to have quite the impact they did. While 37 per cent of businesses that had been established for less than a year said rents would hold back growth, this rose to 62 per cent after 12 months.

Concern about rents hindering development decreased to 53 per cent after three to five years, and dropped again after nine years or more to 31 per cent. The research suggested that those firms which were able to survive the initial rough period in London and the South East, were able to weather out future hikes in rent.

With the first year being so tenuous for many new businesses, the research also found that there was concern about the choice of location within London. While some developing firms may think just being fairly centrally based would stand them in good stead, the percentage of numbers feeling they were being held back by a lack of proximity to like-minded business rose from eight per cent to 20 per cent after a year.

Herd said: “Our fundings reflect the startup journey; a London address provides kudos and contacts when you begin but a year later, the honeymoon is over as bills start to flow in.”

The study also found that business coaching was considered a helpful offering to startups. Founders asked about the value of various support services, became increasingly interested in accessing skilled counsel after one to two years – rising from 41 per cent to 54 per cent.

“The world is full of people with ideas and low on experience, support networks such as our own can bridge that gap, ensuring ideas become successful commercial innovations,” Herd explained.

His Sussex Innovation Croydon hub opens in the autumn, providing a base for 30 high-growth potential companies, while supporting local businesses through its network too.

Image: Shutterstock

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Rebecca is a reporter for Business Advice. Prior to this, she worked with a range of tech, advertising, media and digital clients at Propeller PR and did freelance work for The Telegraph.

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