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    Tech Firms Vacate Office Space as They Downsize


    In the last few weeks, many companies have announced mass layoffs, significantly slashing their roster in the wake of a looming recession. Along with the drop in the number of employees comes the decline in the need for office space. Tech companies are looking to unload big chunks of office space in San Fransisco, Silicon Valley, New York, and Austin, among others.

    Big technology companies drove the demand for office space in the US for years. Now, these companies are cancelling their leases because they have more floors than they need. Meta Inc., Lyft Inc, Salesforce, and many others are vacating office space across the US market. Amazon has halted the construction of its new office after implementing a hiring freeze and layoffs due any day this week.

    The real estate market has been through crests and troughs since the pandemic. During the lockdown, leasing declined as companies adopted the hybrid models and employees began working from home. Tech companies were the majority contributors in the leasing that happened at the time.

    Downsizing presents a much more significant threat to the office leasing market than working from home. Technology companies placed 30 million square feet of office space to sublet this year, more than triple the amount (9.5 million square feet) put up for subletting in 2019. This could adversely affect the economies of many cities that rely on the revenue of the local real estate sector.

    To put things into perspective, the national office vacancy rate rose to 12.5% (the highest since 2011) this year from 9.6% in 2019. Around 212.5 million square feet of office space is available for subletting, a record in the last 15 years. The office buildings account for $1.2 trillion of the $5.4 billion total commercial real estate debt that was outstanding, exceeded only by debt from apartments.

    The pullback of big tech companies could result in building owners defaulting on their mortgages at higher rates which could adversely affect the financial system. Tech companies leased over 500 million square feet of office space in thirty North American markets, which could be severely impacted.

    In San Fransisco, businesses leased 850000 square feet in the third quarter of 2022 compared to the last five years’ average of 2 million square feet per quarter. Salesforce, one of the city’s biggest employers, is looking to sublet one-third of its 43-story building. Meta is looking to sublet the space in a new skyscraper they were supposed to anchor once its construction was complete.

    Tech companies preferred to lease high-end office spaces in hopes of attracting top talent, allowing building owners to charge a premium rate. Tech companies continued to hire tens of thousands of employees during the pandemic. They leased office space for when the employees returned to work. In 2021, tech companies were responsible for 20.5% of all leasing activity in the US office market, which was higher than any other sector.

    As the pandemic moved into its third year, it was a possibility that companies would opt for a fully remote work model. It would have been bad for the office space leasing market. Fortunately, those fears were never realized. Instead, mass layoffs have brought about a decline in office space demand.


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    About the Author

    Kamal Rastogi is a serial IT entrepreneur with 25 yrs plus experience. Currently his focus area is Data Science business, ERP Consulting, IT Staffing and Experttal.com (Fastest growing US based platform to hire verified / Risk Compliant Expert IT resources from talent rich countries like India, Romania, Philippines etc...directly). His firms service clients like KPMG, Deloitte, EnY, Samsung, Wipro, NCR Corporation etc in India and USA.

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