World beats a path to Cambridge’s AI and cyber tech ‘billionaires row’
Cambridge has the weaponry to compete for new companies and talent with the world’s best technology centres in the years ahead thanks to multi-billion dollar investment in its burgeoning AI and cyber security sectors, new research from Savills reveals.
Lower wages in the UK is likely to draw more talent from the US and other hi-tech honeypots and there is already a growing global queue for suitable offices in the city to house new international technology plays, says Rob Sadler of Savills.
Unveiling Savills’ new spotlight report, ‘Cambridge: A city state of mind?’Sadler spelled out the unprecedented opportunity for Cambridge to beat centres like its namesake in Massachusetts to become undisputed world AI and cybertech Number One.
Savills has called for more speculative office development and more affordable housing to help Cambridge confirm its world lead – including the introduction of a 40 per cent deposit ‘Help to Buy’ residential product in Cambridge like there is in London.
Sadler believes it would be criminal for Cambridge to let its advantage slip. He says: “Cambridge has been one of the key global success stories over the past decade, but it needs to evolve and adopt new strategies to remain in a position of strength in a post-Brexit world.
“Savills research shows that Cambridge has attracted more than £8.25 billion of corporate investment (VC, M&A and private equity) in 2017, compared to the five-year annual average of £7.87 billion, as the city continues to attract multinational office and lab occupiers and competes as a key global innovation hub.
“An obvious growth area for the Cambridge economy is an increase in technology businesses, in particular Artificial Intelligence and cyber security. Data analysed by Savills shows that total corporate investment for the cyber security sector in the city for the three-year period of 2015 to 2017 saw growth of more than 3,000 per cent compared to the preceding three years (2012-2014). The comparable figure for AI is almost 2,500 per cent. In contrast, although still an impressive figure, the more traditional life sciences sector has seen just 670 per cent growth in this time.”
To put this into a real estate context, Savills’ figures show that in the first half of 2018 technology businesses transacted 103,636 sq ft of space, accounting for 55 per cent of all take-up in the city.
For instance, Samsung has recently committed to opening a new AI hub in Cambridge, which will add to the already growing cluster of mature AI developers, such as Amazon, Microsoft, and a fired-up phalanx of startup firms.
Darktrace is another example, having raised $180 million of funding since its inception in 2013 from global investors including KKR and SoftBank. The cyber security firm is in the process of moving into new office space totalling 19,813 sq ft at the Maurice Wilkes Building on St John’s Innovation Park, an increase in floor space of circa 692 per cent in the past five years.
Similarly, PROWLER.io – a growing force in AI, is moving from 4,500 sq ft to 26,000 sq ft at 72 Hills Road after just two years of remarkable growth.
Sadler deals another ace into Cambridge’s hand: “The University of Cambridge is due to play a large role in the growth of the AI sector having received £10 million in funding to develop a new supercomputer which will enhance the research capabilities of these companies.
“With a limited supply of AI experts across the UK, this is likely to create and attract new talent to the city. What’s more, the UK Government’s AI Deal is worth more than £1 billion and Cambridge is well placed to capitalise on increasing interest in the sector.”
Savills notes that the future of Cambridge rests on its ability to continue to establish these growth sectors and new workspace is appearing to assist with this ongoing evolution. The startup community in Cambridge remains buoyant but at present demand outweighs supply. The Bradfield Centre at Cambridge Science Park is a new 40,000 sq ft facility dedicated to housing startups but this and St John’s Innovation Centre are the only large co-working schemes currently available.
Savills is aware of more than 100,000 sq ft of requirements from serviced office operators looking for space in Cambridge which, if realised, could help further advance technology innovation in the city.
With a growing international reputation for AI capability and strong connections to sources of capital, Cambridge is likely to compete at the highest global level within the bioscience and technology fields, especially with places such as Cambridge, Massachusetts in the US, says Sadler.
“Brexit uncertainties and a weaker sterling rate compared to the dollar means that salaries are by far the biggest cost and differentiating financial factor in locating a corporate business, with UK wages currently at a significant discount to the US in this sector,” he adds.
“We are very well placed to take advantage of the discounts created by Brexit and attract and retain global firms. What we now need to do is make sure we can meet their requirements by providing appropriate office space, robust infrastructure and affordable housing for staff coming to work in these new emerging sectors within Cambridge.”
From a residential property perspective, Cambridge is a city facing the same challenges as London – and increasingly patterns seen in London are played out in Cambridge. Like the capital, affordability remains challenging and developments outside the city, in necklace villages, have seen an increase in demand as a result.
Cambridge also mirrors the London market’s response to political uncertainty, stamp duty hikes and the targeting of buy-to-let mortgages. Political uncertainty is likely to be the overriding factor in the market for the next six months and, although we anticipate buyer uncertainty over Brexit will inevitably lead to inactivity, there will be room for growth in the longer term.
As in London, affordability in Cambridge remains a challenge. Pressure on the city means hinterland locations are seeing increasing demand.
Within the city, our latest report shows the median house prices to be 13.5 times greater than median annual earnings. By comparison in the neighbouring local authorities of South Cambridgeshire, Huntingdonshire and East Cambridgeshire house prices are 11.0, 8.7 and 9.8 times earnings respectively – and although still a concern for many would be buyers, these locations are not as stretched as those seeking to buy in Cambridge itself, so those looking for value will look to these areas.
The city has a strong residential development pipeline and in our report Savills has identified sites with capacity for over 17,000 homes either in planning or currently under construction in the city. However, much of the new development currently available is aimed at the top end of the market, the average value in the year to June 2018 for a new build house was £814,865, 33 per cent higher than the average for second-hand houses. This difference, combined with limited supply, is helping to hold up values in the second-hand sector. In contrast, in South Cambridgeshire, new build values were 1.8 per cent below second-hand values and will look attractive by comparison.
Uncertainty is likely to be the driving force in the Cambridge residential market for the next couple of years as the UK negotiates its exit from the European Union. But where international buyers may have slowed, the international rental market is still healthy. Cambridge is still attracting an international work force, who are increasingly looking to the rental market.
According to Savills’ deal book data in 2016 and 2017, 29 per cent of new lettings were to European tenants. Once the future of the UK’s relationship becomes clearer, and after the recent correction in prices, there will be room for future growth.
Toby Greenhow, director, Cambridge residential development sales, says: “The average house price to earnings ratio in Cambridge is similar to that of Greater London and therefore constraining for many. “If we had a 40 per cent deposit ‘Help to Buy’ product in Cambridge, as there is in London, this would help many more buyers fulfil their dreams of home ownership.”
Overall, Savills believes that Cambridge will keep growing and widening its reach. The fundamentals of a buoyant commercial market coupled with a return to growth in the residential market, once the uncertainty of Brexit is resolved, means that the city will continue to be viewed as competitive in a global market, Sadler says.