The final week at the Sydney Startup Hub was punctuated not by champagne toasts but by Slack threads littered with crying emojis. Tech founders hauled monitors into Ubers, along with cardboard boxes stacked with office documents and half-used whiteboard markers. For many, the move felt abrupt and disorienting: after seven years, the NSW government shut down the York Street hub, breaking its lease three years early.

The official line was blunt. The tenancy was costing taxpayers $15 million a year, and government ministers deemed it “not commercially viable and not fit for purpose”. In an era of fiscal restraint and question marks around the relevance of physical office spaces, that was enough justification. For many of the 600-odd entrepreneurs and start-up employees who called the hub home, however, the announcement landed like a thunderclap.

“It’s no secret it has not been well received,” says Carolyn Breeze, chief executive of ASX-listed Scalare Partners. “It has been a cornerstone of Sydney’s innovation ecosystem. The hub provided space, connection and opportunities for thousands of entrepreneurs. Its absence creates a void that risks slowing momentum at a time when supporting founders has never been more important.”

Breeze, whose company has since acquired co-working provider Tank Stream Labs to offer displaced founders with an alternative home, argues the government underestimated the hub’s symbolic and practical role. “The hub has been more than just a building … it’s been the beating heart of our start-up ecosystem.”

A community cut adrift

For many of the entrepreneurs who worked from the hub, such as Timothy Yang, the announcement was a blindside. He says he heard the news through the media. “We had no consultation, no clarity. One day we’re in, the next day we’re told it’s shutting,” he says.

For Yang, the lack of certainty is more than an inconvenience: it forces young companies, already strapped for cash, into costly leases or scatters them across a patchwork of co-working providers. Many of them don’t know where to go.

Some are going remote-first and working from home again or in more classic start-up move, a garage. “It’s left a lot of founders in limbo,” says Skye Theodorou, chief executive of insurance tech start-up Upcover. “Many are deciding whether to have their teams work remotely or fork out for a more expensive space, a cost they may not have budgeted for in a tight funding market.”

Theodorou, who previously worked in the Department of Industry when the hub was established, says the space was always on the back foot in proving its impact. “Start-ups are economic multipliers, and it’s hard to measure what a space like this really delivers. But for us, access to a free hub allowed us to focus on other costs. It gave us somewhere to meet investors and clients, and to grow.”

Upcover has expanded from two employees to 11. “We grew out of the Sydney Startup Hub,” Theodorou says flatly.

Non-profit co-working provider Stone & Chalk was the hub’s anchor tenant. Its chief executive, Chris Kirk, says that over its seven-year lifespan, the hub supported tens of thousands of entrepreneurs and proved that place-based innovation works.

“Companies located there progressed further along their journey than they otherwise would, which is exactly what you want to see,” he says. “There’s been a lot of confusion, though. Founders were left asking what the transition plan was, how they’d continue to receive support, and whether subsidised, affordable workspaces would still be available.

“Entrepreneurs need to be focused on taking risks and building vibrant businesses, not worrying about where they’ll sit tomorrow. It’s our job to roll up our sleeves and provide that support.”

Politics, optics, and the ROI question

The optics of $15 million a year on city office space have been difficult to defend, especially as public finances tighten. “As a taxpayer, I shudder to think what the ROI [return on investment] is,” says David James, the founder of online babysitter platform Juggle Street.

The opposition has been strident in its criticism of the government’s approach. Spokeswoman for innovation Jacqui Munro has accused the government of dismantling the existing ecosystem without a plan.

“The government should come clean to founders about what the government will or will not do to foster a thriving innovation ecosystem,” she says. “Without vision, certainty or passion in government, progress doesn’t happen. Founders are already looking interstate and overseas.

“We have put repeated and unanswered questions to the minister about what resources will be available for start-ups and incubators that have been forced to shut down.”

The government insists Tech Central – an 8000-square-metre complex near Central Station that was first planned under the former Liberal government – will more than compensate. It has committed $38.5 million to the precinct, promising space for anchor tenants such as Stone & Chalk, an international landing pad for foreign start-ups, and links to Atlassian, Canva and university research.

NSW Innovation Minister Anoulack Chanthivong says Tech Central could help generate 350,000 jobs and $34.5 billion in economic activity by 2040.

“The former government locked NSW taxpayers into an agreement despite a clear shift toward remote working, resulting in excess office space across Sydney,” says a spokesman for Chantivong.

“This led to an entirely foreseeable decline in demand for co-working facilities at the current Sydney Startup Hub location. Their decision has left taxpayers, government, start-ups, and anchor tenants worse off.

“Transitioning to Tech Central will enable founders, entrepreneurs, investors and corporates to collaborate more closely with universities and research institutes, in Australia’s leading innovation precinct.”

Atlassian’s billionaire co-founder, Mike Cannon-Brookes, is an unabashed supporter of Tech Central and is confident it will help propel Australia’s tech industry. “Even in an increasingly distributed world, proximity still matters,” he says.

“Credit to the NSW government for backing such an ambitious project. Tech Central is a big bet on the future and the kind of long-term thinking our industry needs.”

Kirk, the Stone & Chalk chief executive, is also bullish on Tech Central’s potential and calls the Sydney Startup Hub’s closure bittersweet. He says the taxpayer subsidies are a reminder that Sydney remains one of the most expensive cities in the world, particularly for real estate.

“Globally, these hubs are underwritten either by billionaires or by governments. The model works because the economic return is proven,” he says.

“Just as you invest in a highway, you invest in innovation precincts … It’s a multibillion-dollar opportunity for NSW. Sydney has a chance to fundamentally redefine this whole pocket of the city and rethink its identity around innovation.”

Do hubs even matter?

Beyond the political tussle lies a more fundamental debate: in an era of hybrid work, Slack huddles and cloud collaboration, do we need physical hubs for innovation?

Some critics say no, at least if they’re being funded by the taxpayer. Jennifer Harrison, a long-time member of the local start-up sector, dismisses Tech Central as “soulless steel and concrete”.

“It’s inconvenient for business meetings … and eye-wateringly expensive,” she told start-up industry publication Startup Daily. Others argue taxpayer money is better spent on grants, research programs or direct founder support rather than subsidised rent.

Yet supporters counter that serendipity still matters. “Start-ups don’t grow in a vacuum,” says Breeze. “Bumping into a future investor or co-founder at the kitchen bench still matters.”

Kirk echoes the point: “You can’t be an expert in everything – proximity and collaboration are what make breakthroughs possible.”

Other cities are capitalising on the turbulence. Melbourne has the likes of Inspire9, a Richmond warehouse that has birthed global players such as Culture Amp and 99Designs, and the fast-growing Cremorne Digital Hub nearby. Meanwhile, Brisbane’s innovation programs are drawing founders north with longer-term policy certainty (and a sunnier climate).

Sydney, meanwhile, risks muddling through. A gleaming Tech Central is potentially years away from its potential. Founders, impatient and mobile, may not wait. “The cost of uncertainty is high,” says venture capital investor Will Richardson of Giant Leap. “Nothing beats stepping off a train at Wynyard, grabbing a coffee and walking into a buzzing hub. Moving to Tech Central is a step backwards.”

Breeze is making a plea, calling for corporates and landlords to co-invest in affordable alternative spaces. She’s warning that without them, Sydney risks falling behind. “The cost of inaction is too high. Sydney’s founders have shown up, and now it’s time for the city to show up for them.”

The test ahead

For those intent on building the next Atlassian or Canva, the demise of the York Street hub is more than a simple relocation to a different building, or a line item in the state budget. It’s a litmus test of to what degree governments value physical ecosystems in an increasingly digital age, and whether taxpayers should be willing to subsidise them.

For now, members of Sydney’s start-up community remain hopeful but wary. Founders are improvising, either shifting over to Tech Central, signing expensive leases, or going fully remote. The Slack channels may be filled with crying emojis, but the real tears could come later, if the loss of a common space translates into lost momentum for an industry that thrives on proximity, energy, and chance encounters.

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