US Big Tech Vacates Offices... Sublease Listings at a 10-Year High

Rental Listings Tripled Compared to Pre-COVID-19
Amazon Halts Construction of 2nd Headquarters... Google Subleases Office
Building Value Drops to One-Quarter After Amazon Leaves

The Wall Street Journal (WSJ) reported on the 16th (local time) that major U.S. big tech companies are consecutively downsizing their offline office spaces.

According to real estate brokerage CBRE, office spaces subleased in 30 U.S. cities with high tech company tenancy have reached the highest level in 10 years. As of the first quarter of this year, 168.4 million ft² (approximately 15.6 km²) of office space was available for lease, which is about three times more than at the beginning of 2019.

[Image source=AP Yonhap News]

New office leases or expansions have also decreased. According to CBRE, the number of new office leases by tech companies in the fourth quarter of last year was half of that in 2019.

This is because big tech companies, which had been expanding their offices even during the COVID-19 pandemic, have suddenly started to downsize their office spaces. Big tech companies such as Amazon, Meta, and Alphabet, Google's parent company, expanded their offices even while increasing remote work during the COVID-19 period. They were among the largest tenants in places like Seattle and San Francisco, and were major leaseholders in Manhattan, New York, comparable to the financial industry. However, recently, they have been showing signs of not renewing contracts after lease expirations or disposing of office spaces.

Tech companies initially expanded their office spaces as they increased hiring during the early COVID-19 period, anticipating that new employees would return to offices later and require more space. However, recently, with a growing preference for remote work among employees and some companies conducting large-scale layoffs, the need for office space has significantly decreased.

Amazon halted construction of its second headquarters located in Northern Virginia last year and has stopped leasing some office spaces or is not renewing contracts. According to data company CoStar, Google has listed its Silicon Valley office space for sublease. Meta recently reduced its office space, lowering office lease costs compared to the early COVID-19 period. Salesforce recently disclosed in securities filings that as of January, it holds 900,000 ft² (approximately 83,612 m²) of office space in San Francisco, which is about half compared to 1.6 million ft² (approximately 148,645 m²) a year ago.

The downsizing of offices by big tech is impacting urban commercial districts and landlords. During the period when these companies actively expanded their offices, high-income employees moved in, increasing city property tax revenues and revitalizing local commercial areas. However, amid a real estate market struggling with high interest rates and decreased demand, the added pressure from big tech is intensifying the burden.

In some areas, the exodus of big tech companies has caused real estate values to plummet. For example, a 15-story building in Seattle saw its value triple over 10 years after the financial crisis when Amazon became a tenant. The building was traded at $77 million in 2011, $150 million in 2013, and was purchased by JP Morgan for $206 million in 2019. However, with Amazon terminating its lease contract this year, the building's value is expected to fall to about one-quarter of what it was five years ago.