The tech mecca faces a huge problem: a surge of empty offices.
The Covid-19 pandemic has been good for tech companies.
The global economy has moved online overnight. From groceries to medical consultations to art, the economy has become tech-driven.
The pandemic has thus enabled technology to become the engine of our daily lives faster than expected. One of the big changes also accompanied by tech during the pandemic is the transformation of the way we work.
Remote work has established itself as the new organization of work. Regardless of the activity, working remotely has become the norm, which has forced the restaurant industry to develop home delivery, for example. This transformation of the economy into a tech-regulated economy has thus benefited Silicon Valley, which is home to a large number of tech companies.
When the economy reopened, many habits born during the pandemic became anchored in everyday life and even within tech companies themselves. This is the case with remote work. Many employees no longer want to return to the office because the pandemic, they explain, has shown that working from home is just as effective. So why change, they seem to ask.
Work From Home
Fearing the disappearance of the corporate culture, many firms have tried different formulas to bring back their employees, but it has not worked. Apple (AAPL) – Get Free Report, Google (GOOGL) – Get Free Report and Meta Platforms (META) – Get Free Report have had to postpone the return to the office several times.
Some firms have ended up adopting a hybrid formula consisting of a minimum number of days in the office. But even this arrangement isn’t enough to bring employees back to the office.
But what appeared to be a problem for companies is now finally proving to be a boon at a time when a recession is anticipated. Faced with the slowdown in growth, many tech companies have begun to drastically reduce their costs to protect their profits. Not only are they cutting thousands of jobs, but they are also closing offices.
Recently Salesforce (CRM) – Get Free Report, whose tower is one of San Francisco’s most visible symbols, unveiled, on January 4, a vast restructuring plan, including massive job cuts, downsizing of its office space and exits from some property markets.
Unsurprisingly, San Francisco is one of the cities that suffers the most from the growing phenomenon of empty offices.
A report from Savills found that the office availability rate in San Francisco set a new all-time high in the fourth quarter at 32.1%, up from 28.9% in the third quarter. This means that almost a third of the office space in the city is currently empty. Availability of sublease space increased to 8.2M square feet, up from 7.7M SF in the third quarter.
“Persistent uncertainty over the economy, the widespread adoption of the hybrid workplace, slow return to office utilization, and an ongoing correction in the technology sector has shown that lower office space demand might be the new normal going into 2023,” the report said.
“As a result, expect highly tenant-favorable office market conditions to remain for the foreseeable future as record-high availability levels are forecasted to continue to increase even if local employers attempt to get their employees back into the office [this] year.”
‘It Will Go Lower’
Elon Musk, the new owner of Twitter currently headquartered in San Francisco, thinks the situation will even get worse. It all started with a message from investor David Sacks saying he had a very attractive offer to rent offices in the city.
“Just got offered office space in San Francisco (SOMA) for the same price as 2009. Yikes,” Sacks, who is also Musk’s friend posted on January 8.
“It will go lower,” Musk commented.
Musk hasn’t said if Twitter will leave San Francisco yet, but given this tweet and other remarks he’s already made about the city, it won’t be surprising to see the platform leave California in the coming months.
In adddition, Twitter’s landlord — Columbia Reit- 650 California LLC –, said in late December it notified the platform that the company will default on its rent. The New York Times reported on Dec. 13 that Twitter hadn’t paid rent for several weeks for any of its global or San Francisco offices.
Tech has helped make remote work a norm. Now tech cities are suffering.