New global tech hubs are emerging from the Covid crisis

As many businesses limp towards the end of 2020, tech is proving its resilience, leading the market recovery over the past few months.

But, despite the bounce back, the tech ecosystem no longer looks the same as it did before Covid-19. An overnight transition to a remote-first world has convinced tech leaders and employees alike that they no longer need to pay through the nose for rent in expensive city centres. And, as tech looks elsewhere for talent and office space, new global tech hubs are emerging.

Remote work has become the new norm over the past year, with the number of people permanently working from home expected to more than double in 2021, according to research by Enterprise Technology Research (ETR). And a desire for greater flexibility is reflected in job postings. Across the developed world, the percentage of advertised roles that can be done remotely has surged, particularly in service sector-heavy economies such as the UK and Spain, according to the latest State of European Tech report published by Atomico.

The result is that new regions are competing with the likes of London and Silicon Valley by offering start-ups an affordable and attractive alternative to crowded traditional tech hubs with the same salary and job benefits.

Ireland, Germany and the Netherlands have all been identified by accountancy firm BDO as the next generation of European tech hubs thanks to their strong networks of venture capital and government support. Outside of Europe, promising pools of untapped talent also recommend the likes of South Africa and Vietnam.

The rebound in the digital economy is fuelling a race for the top tech talent, says Tony Spillett, partner and national head of technology and media at BDO, with cities around the world vying to become the future tech hubs that will lead the global economic recovery.

Strong infrastructure, attractive government incentives and ready access to capital are all key determining factors, he says. “[But] the primary driver is access to talent, whether that is high-calibre local graduates or an immigration system that allows the brightest and the best to relocate.”

Policymakers are also looking for innovative ways to draw in skilled workers to boost their profile as a leading destination for tech. One such policy that looks to take advantage of the trend in remote work is the “digital nomad” visa, which grants independent knowledge workers temporary residency while they work for companies in another country. Estonia was the first nation to launch a nomad visa in June 2020 and projects that 1,800 people will apply for one every year.

Other countries are also trying to increase the pull for tech talent by lowering the barriers to entry. In the UK, a Global Talent Visa was launched in 2018, allowing skilled workers from outside the EU to work in the country for five years without needing a company sponsorship. Over the past year, demand has increased 48%, according to Tech Nation, with figures expected to accelerate next year once the UK leaves the EU.

“In the UK, as everywhere else in the world, we’ve seen a huge race for global tech talent really heating up,” says George Windsor, head of insights at Tech Nation. “Lots of countries are trying to make their pitch to be the place for global tech talent.”

But, even where countries can rely on established infrastructure, government incentives and venture capital backers to continue to draw tech, Covid is forcing a regional rebalance in the tech ecosystem.

Huge disparities between the cost of doing business in legacy tech hubs and other cities is enticing tech to new locations. With the cost of renting prime office space in London and Paris around three times the price in the next most expensive city, according to the Atomico report, it is no surprise that companies are looking to cut costs by setting up base elsewhere.

Indeed, hiring trends in the UK for skills in key emerging areas of tech like cybersecurity and artificial intelligence (AI) indicate these trends are already playing out.

Data from Tech Nation shows there is a growing network of specialised tech start-ups in UK regions such as the Midlands, which is drawing skilled workers away from London and the south-east. In Northern Ireland, the number of tech roles requiring specialist AI skills jumped more than 400% between 2017 and 2019, indicating that these shifts were already in play before the pandemic, which is set to accelerate the upheaval of the legacy tech ecosystem.

Tech Nation data also points to a maturing ecosystem in established tech hubs, with falling demand for specialised fintech skills in places such as London. This reflects a shift in priorities as start-ups grow and move from building a product to scaling internationally, says Windsor.

“We’ve seen companies hiring rapidly for those people with fintech skills as they build products and build services,” he says. “Then, as their businesses grow, we see a more broad-based hiring strategy where they look to grow other areas of the business that might be non-tech jobs within the tech sector.”

But there is still healthy demand for fintech skills in smaller cities in the east of England and Wales, as new start-ups look to take advantage of cheaper running costs and emerging tech ecosystems.

In most countries, universities are a good barometer of emerging tech hubs, says Windsor, with many of the UK companies with unicorn status – valuations of over $1bn – based near top-tier universities like Cambridge and Bristol.

“[These start-ups are] not based in London and one of the reasons for that is they demand extremely specialised talent,” he says. “Many of them are clustered around existing centres of academic excellence and I think the university landscape is going to be a good indicator of where we’re going to see these companies emerging in the future.”

But, there is still a long way to go to shift the focus away from London and the south-east in the UK. A series of new reports from trade association techUK reveals that the UK capital received 73% of the government’s £770m Future Fund support and 76% of all venture capital investment in the first half of 2020, up from 68% in 2019.

So, while it is clear that Covid is accelerating the emergence of new tech hubs in the UK and beyond, to grow these future hotspots for global innovation, policymakers need to channel investment and resources into these too often neglected regions.