Can Real Estate Help The UK Create More Unicorns?

“Why is it that the UK is not as good as the U.S. at taking companies and building them up to scale, even thought we have more of the top 100 educational institutions than anywhere else in the world?” Legal & General Investment Management Head of Real Assets mused at Bisnow’s Global Placemaking event. And, he went on to ask, can real estate help change this?

The numbers bear out his hypothesis. The U.S has 156 tech unicorns according to CB Insights, or one for every 2.1 million citizens. With 16 unicorns and a population of 68 million, the UK has one $1B company for every 4.1 million people, in spite of the deep well of what every company is supposed to want: brainy, talented people.

There are cultural and economic reasons, of course. The U.S. capacity for risk and a huge domestic marketplace for new companies are just two factors. Whatever the reason, Hughes and his fellow panellists felt that real estate had a role to play in helping the UK up its unicorn game, and in turn help boost the economy.

“From a placemaking point of view, we have to find a solution that gives smaller companies space and then allows them to grow while staying in the same area,” Hughes said.

Imperial College is just one of many universities creating campuses where business and academics can work cheek by jowl and be of benefit to each other, but Associate Provost for Academic Planning Nigel Alford said creating the flexibility that allowed companies to grow is difficult.

“We had one company that used our incubator space that grew tenfold, but we had nowhere for them to go,” he said.

Wordsearch London founding partner David Twohig outlined the issue for developers. While the idea of providing cheap and flexible space for small companies to expand into when they scale up is great in theory, it carries an inherent risk. Because what if they don’t?

“Developers struggle to give up space they have fought for at anything other than the highest value,” he said.

He urged them to think creatively about ways to do this. “It can be the lowest-value space on ground floors, and in a significant scheme of say 1M SF, 30K SF is only 3% of your gross development value,” he said.

Hughes said it was up to institutional investors like LGIM to take the lead.

“Long-term capital should be investing in these kind of long-term situations,” he said. “We have the ability to see past those kind of short-term considerations.”