Big Tech Offloads Office Space, Putting Commercial Landlords in Flux

Silicon Valley’s move-fast-and-break-things mindset now extends to leases. 

Big Tech companies — some of the more reliable office building tenants— are reversing course by letting leases expire or subleasing space across major cities, leaving commercial landlords with empty square footage and growing losses, The Wall Street Journal reported. 

Downsizing

Everybody remembers the ghost towns that bustling cities like New York and San Francisco turned into after COVID-19 left streets, shops, restaurants, and office buildings empty for months on end. For companies that could make the transition, especially tech firms, employees easily switched to remote work. The hope was that those workers would eventually return to the office and downtowns would thrive. 

And while that happened to a degree — New York City’s return-to-office rate is at 80% of pre-pandemic levels thanks to its banking and finance sectors, Bloomberg reported — Big Tech is headed in the opposite direction. Amazon, Meta, Google, and more are seeing less need for office real estate as they hold on to remote work practices and decreased headcounts: 

• In the fourth quarter of last year, US tech companies were leasing roughly 7.4 million square feet of office space, the WSJ reported. That’s nearly double what the sector held a year earlier, but it’s still a dropoff from the 10.5 million square feet rented in 2021. That empty space is causing headaches for commercial real estate owners. As of December, offices accounted for 41% of the value of distressed commercial properties in the US, which stood at roughly $86 billion, MSCI reported. 
• Salesforce occupied 900,000 square feet of office in San Francisco as of January, not even half of what it owned or leased a year earlier. Amazon paused construction on a new headquarters in Virginia after a massive round of layoffs. CoStar reported that once Meta’s lease at a building on Manhattan’s Broadway ends in June, it plans to give up 275,000 square feet of space.

The tech sector was plagued by layoffs last year. According to Layoffs.fyi, 2023 saw roughly 1,200 tech companies let go of about 263,000 employees. And 255 firms have already laid off 74,000 workers so far in 2024. 

What’s a Landlord to Do? The office space problem may lie less with the emergence of remote work and more with a glut of outdated buildings that no longer fit tenants’ needs. “A law firm in the 1980s required substantially more space in order to accommodate stenographers, law libraries, mailrooms and storage space for files,” investment firm Brookfield said. These days, all of that work is on a few hard drives. One option for ailing landlords is to turn office space into housing — NYC already has 55,300 units scheduled for conversion, according to RentCafe. Just remember to write your name on your lunch when you move in.