Our Thoughts
Tue, 31/10/2023 - 12:00
· 4 min read

Our growing AI clusters reveal a deeper truth about the UK’s place in the global economy

Start-ups across Cambridge, Oxford, Newcastle and Bristol have helped turn the UK into a global powerhouse in the development of Artificial Intelligence. The story runs counter to much of what we hear about the UK’s economic prospects. Real estate investors should take note.

The government’s decision to scrap the Birmingham to Manchester section of HS2 was about more than just a rail line.

The story, and others like it, tap into broader worries about Britain in decline – a theme that has been explored with increasing regularity since the 2016 Brexit vote. We like to read a lot into our setbacks, and that’s fine – Britain faces challenges on multiple fronts, but we should do the same for our successes.

The UK has quietly become a global powerhouse in the development of Artificial Intelligence (AI), for example. The US International Trade Administration values the UK AI market at $21 billion, making it the third largest AI market in the world after the US and China. The UK market will be valued at more than $1 trillion by 2035, driven by “one of the strongest AI strategies in the world,” the group believes.

As of June, there were 3,052 AI companies in the UK, turning over more than £42.3bn, employing almost 130k people, according to Datacity. How AI became one of the country’s fastest growing sectors is down to a mixture of government backing, a deep pool of established sources of funding and access to talent that is unparalleled in the region – Open AI recently confirmed London as its first non-US location, citing the city’s “exceptional talent pool”, for example.

It’s always tempting to lay stories like this at the door of London’s stickiness as a global city. After all, London is the largest AI hub in Europe, with 12.3% of the continent’s talent share in terms of AI engineers, according to US venture capital firm Sequoia. By my calculations, relying on Beauhurst’s tally of the top 50 UK AI start-up companies, more than £5.1 billion in funding was raised as of 2022, with 80% of the start-ups established in London, representing £4.1 billion in funding.

However, other clusters are emerging, and this is increasingly a nationwide success story. The Cambridge/Oxford Arc has seen a combined £290m raised across five of the top 50 AI start-ups in the UK, according to the Beauhurst research. We’re seeing evidence of growth in regional real estate markets, too. Peak AI took 35,000 square feet office space in Manchester last year, Bristol’s GraphCore has grown at such a clip that it’s now the second largest AI start-up in the UK in terms of funding whilst expanding its original office footprint, and Ezoic will soon open a new UK HQ at Portland House in Newcastle.

My colleague Aidan Baker, head of BNP Paribas Real Estate UK’s Newcastle Office, worked on the latter deal and says companies like Ezoic, MonstarLab and Thoughtworks are “enticed by the young talent pool, helped in part by two universities, as well as the existing presence of major global technology companies like Accenture and Ubisoft.

“A string of recent and upcoming high spec office completions are likely to continue to attract more occupiers in this space as we move towards 2024,” he adds.

The likes of Newcastle and Bristol will face competition from other established technology hubs like Reading, which is relatively cheap in term of office rents, has a high prevalence of smart buildings, connections to London via the Elizabeth Line and is already home to Siemens, Nvidia, CloudFactory and Huawei, to name a few.

For real estate investors, these lettings won’t be huge in terms of square footage. AI companies don’t employ massive numbers (yet) and the sector is unlikely to become one of the country’s largest when it comes to office leasing for the near term.

However, the benefits of clustering are now well understood, and the presence of high-tech industries is a big draw for occupiers from even loosely connected industries. While the UK’s economic climate continues to provide a platform for bleak headlines, the opportunities arising across AI shouldn’t be overlooked. From the extensive pool of private VC investment, to a growing skilled labour force, the UK has cemented its position in the world’s top three AI markets and will remain a pivotal entry point to Europe for global technology businesses.


This article first appeared in React News.

Our growing AI clusters reveal a deeper truth about the UK’s place in the global economy