Amazon, Google and Facebook dismantle offices. Report Wsj
Big American technology companies , such as Amazon and Google, are abandoning offices: it is especially a problem for the economies of large coastal cities in the United States. The Wall Street Journal's in-depth analysis
Big tech companies are shrinking office space in major coastal cities, leaving some owners exposed with empty buildings and huge losses. The reduction marks a sharp reversal after years in which companies such as Amazon.com, Facebook's Meta Platforms and Google parent Alphabet had beefed up their offices by adding thousands of square feet of space.
Their expansion continued even after the pandemic hit and many employees began working remotely. Technology companies have been the dominant tenant in West Coast cities like Seattle and San Francisco, and in 2021 they came to rival those in the financial sector as the largest users of office space in Manhattan.
BIG TECH WANTS TO GET OFF OFFICES
Now big tech companies are letting leases lapse or looking to shed some offices. Amazon is abandoning or not renewing some office leases and last year paused construction of its second headquarters in Northern Virginia. According to data firm CoStar, Google has put up sublease offices in Silicon Valley for sale. Meta has also abandoned some offices and is renting less than it did at the beginning of the pandemic – writes the WSJ .
Salesforce, the cloud-based software company, said in a recent securities filing that it leased or owned approximately 10,000 square feet of office space in San Francisco in January. That's just half the 150,000 square feet of office space it said it had in that city a year earlier.
Tech giants looking to shed some of their jobs face stiff competition. Sublease office space in 30 cities with many tech tenants has risen to the highest levels in at least a decade, according to brokerage CBRE. The 168.4 million square feet of office sublease in Q1 was down slightly from the Q4 2023 peak, but nearly tripled from the start of 2019.
Even tech companies that are renovating or adding spaces want less than before. The amount of new office space leased by tech companies fell by nearly half in the fourth quarter of last year compared to 2019, according to CBRE.
THE ECONOMIC IMPACT FOR CITIES
Tech companies' voracious appetite for offices and other commercial real estate has been an economic boon for cities. The new workspaces usually brought an influx of well-paid employees, boosted cities' tax revenue, and resulted in more business for local merchants and shop owners.
Now, the declining appetite is a blow to cities at a time when other large tenants are hard to come by. For landlords, already struggling with rising interest rates and declining demand from finance companies, law firms and other tenants, the tech sector's turnaround is particularly painful.
COLLAPSE IN PROPERTY VALUES IN VIEW?
In some cases, declining demand for technology can lead to a collapse in real estate values. Take 1800 Ninth Avenue, a 15-story office building in Seattle. Rental payments from Amazon helped triple the building's value in the decade following the 2008-2009 financial crisis.
In 2013, Amazon moved into about two-thirds of the building. By the end of that year, the building sold for $150 million, nearly double the $77 million it sold for just two years earlier.
The price has continued to rise thanks to strong demand from technology companies and low interest rates that have attracted large investment firms to Seattle's commercial real estate market. In 2019, JP Morgan Asset Management purchased the building for $206 million.
Amazon's lease expires this year and the company is moving. The building is for sale. The building is expected to sell for about a quarter of its 2019 price, according to estimates from people familiar with the property.
“We continually evaluate our real estate portfolio based on the dynamic and diverse needs of Amazon's business by observing trends in employee usage of our offices,” an Amazon spokeswoman said in a statement.
When the pandemic disrupted the U.S. office market, big tech companies were initially a bright spot. They continued to add space, betting that they would eventually need it as more people were hired and employees gradually returned to the office.
“The big tech companies have been pretty resilient,” said Brooks Hauf, senior director at brokerage firm Avison Young.
That changed in 2022. Remote work continued to be popular, and some big tech companies laid off workers, meaning they needed less space than they thought, said Colin Yasukochi, executive director of the Tech Insights Center at CBRE.
According to CBRE, between the third quarter of 2021 and the third quarter of 2022, leasing contracts at technology companies fell by about half.
Since then, companies tied to the AI boom have been leasing more space in San Francisco and other cities. But this was not enough to give a significant boost to the office market. San Francisco's office vacancy rate hit a record 36.7% in the first quarter, up from 3.6% at the start of 2019, according to CBRE.
(Extract from the eprcomunicazione press review)
This is a machine translation from Italian language of a post published on Start Magazine at the URL https://www.startmag.it/innovazione/big-tech-distacco-uffici/ on Sun, 05 May 2024 05:50:59 +0000.