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London is the magnet for global tech investment

By Rahul Gautam, Americas TMT Advisory Leader

The views in this blog post are the views of the author, not EY.

Our new report shows that the UK and London continue to lead Europe for inbound technlogy investment, but there is no room for complacency. The UK’s technology sector drew more investment than any other European country in 2016 and London continues to outperform other cities. In fact, the capital secured three times more projects than second-placed Paris, and nearly four times more than third-placed Berlin.

London powers ahead

The capital attracted 63% of all inbound technology investments into the UK, compared with 57% in 2015 and only 43% in 2007. Evidence of London’s status as a global technology hub can be found in the EY UK Attractiveness Report, which puts London in the top three cities with the potential to produce the next global technology giant (behind only San Francisco and Beijing.)

So, why the note of caution?

Looking beneath the headlines, we find that the UK’s share of European foreign direct investment (FDI) actually fell: from 30% of all technology investments across Europe in 2015 to 27% in 2016. This represents the lowest percentage since 2008. The reason? While FDI into the UK increased marginally in 2016, it did so at a rate well below Europe’s 9% climb to hit a 10-year high.

Despite this comparatively weak UK growth, London saw the number of technology FDI projects it secured increase by a healthy 11%. The flipside to the capital’s outperformance is that the regions lagged further behind. As a result, more Government focus on building the Northern Powerhouse may be required. The region was hit particularly hard, seeing a drop of 34% from 35 projects in 2015 to 23 in 2016.

While all technology investments are welcome, it’s interesting to note that the most common type of inbound technology investment is in sales and marketing, rather than R&D, back-office or headquarter functions. The proportion of sales and marketing investments into the UK grew sharply in 2016, from 58% of projects in 2016 to 74% in 2016.

A strong future

Although the UK’s increase in FDI projects could not match the stellar growth of the European market in 2016, it is heartening that there were no signs of any immediate drop in investment because of the outcome of the EU referendum. One reason, perhaps, may be that the UK’s biggest technology investors come from beyond Europe. In fact, according to our report, the US dominates FDI into UK’s technology sector, making up 41% of projects, while India (6%) and Australia (4%) come next.

It may well be naïve, however, to think that those outside Europe are not still keeping a close eye on developments as the UK begins to negotiate withdrawal from the EU. Until more clarity emerges, projects risk being put on hold.

While geopolitical uncertainties like Brexit may well influence short-term sentiment, they will not obscure the enduring attractions of the UK for technology players. The UK’s globally renowned skills and strengths attract investment in everything from start-ups to global technology giants. This will help London and the UK to protect its leading position for inward investment in Europe and capitalise on future opportunities.

Contact us

Rahul Gautam

Americas TMT Advisory Leader