Blog | COVID-19 accelerates Milton Keynes tech transition

The COVID-19 crisis has forced us all to deal with any lingering technological demons, albeit often with the aid of a teen (or younger) offspring. In June, Forbes reported ‘COVID-19 will drive a decade of tech growth in just two years’. Whether it be in how we shop, socialise, operate our businesses, or indeed how we tackle the pandemic crisis itself, technology has taken centre stage in our lives over the last six months.

As the tech sector and associated businesses rise to the pressures and opportunity presented by the new reality of COVID-19, there was, inevitably, going to be a real world impact of the virtual change. This has been exemplified in the Milton Keynes office market. The floorspace taken by the IT sector is up 150% compared with the same period last year, while high tech manufacturing businesses have already taken twice as much office floorspace in Milton Keynes than recorded in 2019 as a whole.

The expansion of such knowledge industry sectors over the last six months has contrasted with the more cautious activity of those in the business and professional services sector. As a result, knowledge focused sectors comprised 60% of take up in the Milton Keynes cluster, up from 50% in 2019.

It is not only the shift in the structure of activity that is notable. Despite the challenging circumstances, the Milton Keynes cluster has seen take-up reach trend levels in H1, with 149,900 sq ft of space let and 70,000 sq ft under offer at the end of June.

As we have noted in our earlier blog, The science of take-up and levelling up, this is in contrast with the majority of the UK office markets. Given the return in demand we have seen in the first months of Q3, we expect Milton Keynes’ take-up for 2020 to exceed that seen in 2019.

This performance in part reflects the impact of the COVID-19 crisis and the business activity in the sector during this period, including some signs of interest from out-movers from the capital.

However, it also reflects the longer-term growth of the city’s IT cluster at the expense of professional and business services. Over the last 18 months, IT has been a key driver of activity, comprising 42% of total take-up. This is illustrated by the final letting of 56,000 sq ft at 100 Avebury Boulevard to Xero Accounting, the leading cloud accountancy software group.  

As a global Smart City, Milton Keynes has been at the forefront of the use of digital data to enhance sustainability, economic growth and openness. Linked to this, the city is frequently the testbed for the tech sector. Two years ago, the city saw the first trials of delivery robots, operated by Estonian company Starship, which have now been adopted by the Co-op and it has been at the centre of the electric vehicle revolution.

Such activity is on top of the breadth and depth of the wider M1 south technology cluster. This ranges from high-tech engineering at Silverstone Technology Park to the COVID-19 testing activity at one of the UK’s mega “Lighthouse Labs” located just outside the city.

In April, the World Economic Forum (WEF) noted the importance of technology “playing a crucial role in keeping our society functional in a time of lockdowns and quarantines.” Significantly, the WEF concludes “these technologies may have a long-lasting impact beyond COVID-19.” While Milton Keynes and similar tech-focused markets will not necessarily continue to see the same pace of tech growth going forward, the structural fundamentals of the city and its environs clearly leaves it well placed in an uncertain future.

Santander’s Technology Hub, Unity Place, which will be home to over 6,000 employees, will provide a significant further boost to the city’s tech ecosystem as well as changing the skyline of the city. The campus will form part of a new tech and education quarter in and around the station, where the new MK:U will also be located. The university, partnered with Cranfield University, will offer a range of technology, engineering and science focused courses to meet the highly skilled workforce demands of current and future businesses in the area.

Clearly, graduates in AI, robotics and the like will present a strong draw for business growth going forward. But, this inevitably will present challenges for the market. Over the last four years the supply of office floorspace has reduced by around a third in Milton Keynes.

More significantly, Grade A stock now stands at its lowest level in 15 years. The tech sector tends to focus on prime space and evidence from these first months in our new COVID-19 world further reinforce this position. 47% of H1 take up in Milton Keynes was Grade A offices up from 37% in 2019.

It may be argued that in the post COVID-19 world this will be less of an issue. It is possible floorspace requirements of individual businesses may reduce going forward and certainly this is the pattern we have seen in the city in the first half of the year.  38% of H1 lettings by floor area were in sub 5,000 sq ft category, while, nearly 90% of current requirements are for units of 20,000 sq ft or less. Unit sizes may be down, but as noted earlier, overall take-up is also up.

It is likely that time spent in the office will focus increasingly on high value collaborative activities - the quality of the space may therefore become more, rather than less, important. As the next evolution of Milton Keynes emerges, with tech at its core, the provision of quality office space will need to be addressed.

Click here to download our latest M1 South Offices market research paper