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  • Writer's pictureRealFacts Editorial Team

Big Tech Is Downsizing Workspace in Another Blow to Office Real Estate

office space

If the situation in the office sector wasn’t already precarious, it is now. Recently, many big tech companies have been pulling back on their office footprint after years of expansion which could send the sector further into a tailspin.

Big technology companies are main tenants in big coastal cities like Seattle, San Francisco, and New York and often draw other companies and startups to their areas. This could be changing. Amazon, for example, has failed to renew multiple office leases recently and even stopped construction on its second headquarters in northern Virginia. According to CoStar, Google has listed some Silicone Valley office space for sublease. Meta is also downsizing on leased office space. In a recent securities filing, Salesforce reported 900,000 square feet of office space being leased or owned in San Francisco which is nearly half of the 1.6 million it had reported just a year prior.

Offloading so much space isn’t easy though. Subleasing of office space in 30 cities that have a lot of tech tenants is at the highest levels in a decade at over 164.8 million square feet according to CBRE. That’s slightly down from Q4 of 2023, but nearly three times as much as 2019. This isn’t a good sign for now struggling cities that have historically relied on well-paid tech workers to pump money and life into local economies. As work from home becomes more prevalent, this only exacerbates these issues.

This trend also deals yet another blow to property values. When big tech moves into your office space, it's often like winning the lottery. A good example of this comes from 2013 when Amazon moved into part of a building that had just two years prior sold for $77 million. At the end of that year, the office space sold for a whopping $150 million, and in 2019 J.P. Morgan Asset Management purchased the asset for $206 million. Amazon's lease expires this year and they’re moving out. The building is now for sale and is expected to fetch just a quarter of its latest $206 million purchase price according to people familiar with the property.

Although the AI boom is helping to draw some companies to these emptying office spaces, it isn’t enough. San Francisco is suffering from a 36.7% vacancy rate in the first quarter of this year according to CBRE. In 2019 the city had vacancy of just 3.6%.

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