The Impact of the Pandemic, Recession, and Layoffs on Office Real Estate in the Tech Industry
For years, the biggest names in tech drove demand for office space as they expanded their empires. Now, those same companies are canceling leases and flooding business districts with office space as they downsize. Facebook, Lyft, Salesforce, Amazon, and other tech companies have all been affected by the pandemic in different ways. Some are shedding millions of square feet of office space while others are stopping construction on new buildings altogether. With the prospect of a recession looming and companies slashing payroll, tech firms find they have too much space and want to unload big chunks of it. Let's take a closer look at how the pandemic has impacted the office space needs of tech companies large and small.
The COVID-19 pandemic has had a profound impact on the economy, and nowhere is that more evident than in the tech industry. For years, big tech companies like Facebook, Amazon, and Lyft drove demand for office space as they expanded their empires. Now, those same companies are canceling leases and flooding business districts with office space as they downsize.
Remember all those conversations months ago on how companies would incentivize workers to return to the office and start utilizing the incredibly expensive tech campuses that have mostly stayed empty for the last two years because of the pandemic. Now, instead of talking about how employees should return to the office, tech firms are now unloading these large commercial real estate obligations in lieu of a more flexible working arrangement with a lot of employees continuing to work remotely.
According to a recent article in The Wall Street Journal, "Facebook owner Meta Platforms Inc., Lyft Inc., Salesforce.com Inc. and other tech companies are shedding millions of square feet of office space in San Francisco, Silicon Valley, New York, Austin, Texas, and elsewhere." Amazon is also feeling the pinch; the company stopped construction on new office buildings in July amid a hiring freeze and is now preparing to lay off thousands of workers.
Staunched pro-office CEOs like Elon Musk threatened Twitter employees after laying off 50% of full-time staff that they must work a minimum of 40 hours per week in one of the office hubs it has globally, and if employees do not heed this edict, he believes that to be their resignation. Of course, real estate and reducing company headcount were table stakes decisions to be made by executives. The real question remains to be asked, is there still a need for a central office for any company to work out of?
In my previous company, we made working out of a WeWork or a shared co-working space a perk and benefit that employees can utilize at the time and at their discretion. This allows people who want and need a quiet co-working space to have access to it with a monthly stipend without necessitating a full lease for a whole company. This lowered our capital expenses significantly and boosted our productivity once we did not have to think about a long commute to and from work. Workers' satisfaction in my previous company also increased when they had more autonomy on how their time was divided into projects and meetings.
Now, with the prospect of a recession looming and companies slashing payroll, tech firms find they have too many floors of office space and want to unload big chunks of it. According to The Wall Street Journal article cited above, "The migration out of offices could dent landlords' bottom lines and worsen an already difficult market for commercial real estate." This is just one more way the pandemic continues to wreak havoc on the economy.
The COVID-19 pandemic has had a profound impact on every sector of the economy, but perhaps none more so than the tech industry. What was once a booming market is now shedding millions of square feet of office space as companies downsize in an effort to stay afloat. With the prospect of a recession looming, it's unclear how much longer this trend will continue or how deep its effects will be felt. One thing is certain: the pandemic has changed the way we do business—and perhaps our whole way of life—forever.