Short-sighted focus on the capital holding UK back in digital race.

Seven in 10 London tech firms have struggled to grow their business in the capital, pointing to soaring costs, a struggle to recruit and a property squeeze, a damning survey says today. The findings are a blow to David Cameron’s dream of making Tech City the world’s home of new computer firms.

Seven out of ten of managers surveyed from the Capital’s tech SMEs say their business has faced barriers to growth, according to research from YouGov.

The most commonly cited obstacles that SMEs think are currently holding the City’s tech firms back include:

• The cost of running the business (48%)
• Lack of available, suitably qualified / experienced staff (24%)
• A squeeze on high quality, affordable office space (25%)

In the past year, property rents in London’s Shoreditch tech heartland have soared by 46%. The vacancy rate – a measure of available office space – has plummeted to a low of 5%, the worst level since before the financial crash.

Almost four in ten (37%) of the SME tech firms which have experienced obstacles to expanding in London say they have missed out on new business because of this, and a similar amount (41%) said their business has grown more slowly than anticipated. Almost half of the companies polled (45%) said that the Government is too focused on Tech City.

Regional cities like Birmingham believe they can capitalise on the constraints to London’s tech growth, and snatch business away from the Capital. Inward investment programme Business Birmingham has thrown down the gauntlet to London, announcing its intention to become the UK’s leading e-commerce hub.

Neil Rami, chief executive of Marketing Birmingham – which operates Business Birmingham – said: “Birmingham and its surrounding areas are becoming increasingly popular with London-based companies looking to expand – in particular, ambitious digital firms that have the capacity to grow but are struggling to upscale in the capital.

“The city is already attracting household names like ASOS, and we believe that Birmingham has the potential to become a global centre for e-commerce. As well as its large talent pool, proximity to London and supportive digital community, the city’s excellent language skills and growing transport networks make it the ideal destination for additional customer service and delivery centres.

“Growing businesses cannot afford to be constrained by their location. Setting up a regional base can provide the space, flexibility and staff required for digital firms to realise their full potential.”

Six in 10 (61%) of the digital firms surveyed agreed that the UK would benefit from having bigger, stronger tech hubs outside of London while 56% think the rising costs in London would drive the growth of other regional tech hubs, while 37% thought the better quality of life outside of the capital would do the same. In regional cities like Birmingham, state of the art office space for digital companies comes at a third of the cost of London property.

Global online retailer http://www.asos.com/  recently set up shop in Birmingham, joining Australian company Tinyme and a host of local digital retailers. Commenting on its move, Pete Marsden, CIO of ASOS, said: “There are huge advantages for a digital company like ASOS diversifying beyond London. We’re an ambitious company with a need to expand our skills to keep pace with our growth.

“Birmingham has the space, talent and vision we are looking for and is still in easy reach of our headquarters in London. Although it wasn’t part of the business case for locating there, the unique culture of Birmingham’s digital cluster and its potential to become an e-commerce hub sealed the deal for us.”

Birmingham already has one of Britain’s best performing digital economies, with 6,099 tech firms employing 38,300 people and delivering £768 million to the regional economy. Tech entrepreneurs and City leaders are convinced that the Government must broaden its horizons from East London, and divert investment to the regions to build a truly competitive digital economy for the whole of Britain.

Digital start-up Owned it began life operating out of the founder’s bedroom in London. When the business started to expand, they took the decision to move out of the capital. Commenting on their move, the firm’s finance director Sonu Bubna said “I am certain that if we had stayed in London, we would not have survived. It was simply too expensive. We have been able to grow in Birmingham thanks to brilliant local graduates and plenty of financial support. There’s no reason why digital companies should have to locate in London. The digital infrastructure is just as good in other cities, and places like Birmingham are developing buzzing communities of tech entrepreneurs to rival the Tech City scene.”