Big Tech offices are getting smaller and that spells trouble for landlords – Quartz

An empty office Photo: Justin Sullivan ( Getty Images )

Alongside layoffs that have roiled tech companies in the last few months, the office market is also feeling the effects of a right-sizing in the wake of massive expansions that happened at the start of the Covid-19 pandemic.

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The Wall Street Journal reports that so-called Big Tech firmsa cohort that includes the likes of Google, Amazon, Meta, and Salesforcehave been shrinking their real estate presences. Sometimes that means putting office space up for sublease. Sometimes it means pausing construction on new offices. When it presented its latest annual report in January, Google parent company Alphabet noted that it had paid $1.8 billion in exit charges on leases last year as part of efforts to optimize its global office footprint.

Even after years of work-from-home culture slowly yielding to a return-to-office orientation, commercial real estate vacancies are still highly elevated. Tech companies, which in many cities had come to rival the footprints of industries like finance, are a big contributor to that supply glut.

Still, SL Green Realty Corp CEO Marc Holliday thinks there might be some hope that the booming artificial intelligence sector might help spur a broader tech real estate recovery.

AI is something that I think is going to awaken the slumbering tech market, Holliday said at a recent Citi real estate conference. Tech has not been a big contributor to incremental demand after about a decade of rapid growth. And I sort of am looking forward to and await their return.

AI companies havemore than doubled their footprint in San Francisos tech-heavy office market, up to 4.8 million square feet this year from just 1.9 million square feet in 2019. But per the Journal, the brokerage firm CBRE says the office-vacancy rate jumped to a record 36.7% this year from just 3.6% in early 2019.

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Big Tech offices are getting smaller and that spells trouble for landlords - Quartz