Follow the Smart Money

Technology investment in the UK reached its highest level ever in 2021. Total investment in UK technology companies reached £29.4 billion last year, up by 230% from 2020.

In what was a record global year for technology investment, it is promising to note that UK investment amounted to over a third of the European total and was more than double Germany (£14.7bn) and three times the level seen in France (£9.7bn).

Technology investment and the growth in high paying jobs that accompany it are often a pre-cursor to a rise in real estate asset values. Blackstone is famed for pursuing technology adjacent real estate investment strategies including last mile logistics warehouses (e-commerce), film studios (streaming platforms such a Netflix) and prime Grade A office space in major tech hubs such as San Francisco and New York.

Sometimes, advanced data science based on enormous and disparate data sets can provide fascinating and prescient insights into the best locations for future real estate investment. But other times it’s easier just to follow the smart money — if the world’s most sophisticated venture capitalists and mega-cap private equity funds are putting their capital to work in a particular location, its prospects are almost certainly very good.

One could have bought almost any real estate asset in the San Francisco Bay Area 20 years ago and seen extraordinary growth in capital value over the following two decades. It seems that we can sooner train more engineers, start more companies and write more lines of code than we can find more land, entitle that land and build tomorrow’s houses, offices and warehouses upon it.

It’s interesting to note that the UK government’s Department for Digital, Culture, Media & Sport recently unveiled a “levelling up power league” to rank regional cities based on venture capital funding, advertised tech salaries and unicorn companies. The top three were Cambridge, Manchester & Oxford. The average house price in Manchester is a fraction over £200k. In Cambridge and Oxford it’s nearer to £450k.

If you can marry tech investment with a high quality of life, low cost of living and low real estate values you might just be onto a real winner. Which brings me to the following tweet from Stripe’s Patrick Collison back in January of this year:

Major tech hubs including San Francisco, New York and London have to some extent become a victim of their own success. By pulling in record amounts of VC funding, startups and the workers associated with them, they have become somewhat unaffordable with a lower quality of life and stratospheric cost of living.

San Francisco’s loss however may be Manchester’s gain. We like the city and we are long the real estate.