Several tech companies that played a leading role in the commercial real estate industry’s decadelong expansion are now scrambling to adapt to an economic outlook that may not require as much physical office space.
Global giants, including Facebook parent company Meta and home-sharing platform Airbnb, are making deeper cuts to once-vast real estate portfolios by shutting down office locations, subleasing unwanted space, terminating prelease agreements and walking away from future investments as they and other businesses shift toward more flexible remote-work options and prepare for economic headwinds that analysts say might result in a recession.
“When many companies decided they were going to go remote first, they needed a lot less office space than before,” said Colin Yasukochi, executive director of real estate brokerage CBRE’s Tech Insights Center. Tech companies have “been the most accommodating in terms of offering flexibility and not requiring their employees to come back for any number of days.”
For Silicon Valley social media company Meta, the latest cut will result in the closing of its office at 225 Park Ave. S in Manhattan, Bloomberg reported earlier. Meta is said to be terminating its lease in the Gramercy Park building, where according to CoStar data it has occupied more than 213,000 square feet across nine levels for nearly six years.
The Menlo Park, California-based company has made cuts to its office footprint in the New York City area and is focused on building out office space in the Hudson Yards development and in the Farley Building at 421 8th Ave. to consolidate its East Coast workforce.
Though the company initially intended to retain all three spaces, Meta spokesperson Jamila Reeves told CoStar News in an email that 225 Park Ave. had been a “bridge space” as the two new locations were finished. Meta is “firmly committed to New York and further anchoring our local footprint. We are working to ensure we’re making focused, balanced investments to support our most strategic long-term priorities.”
Meta has in recent months implemented hiring freezes, layoffs and budget cuts across the company as it contends with slowing advertising revenue and steep competition for users. It has already halted plans to expand by an additional 300,000 square feet in the Vornado Realty-owned 770 Broadway building. Meta leases more than 680,130 square feet in the Greenwich Village property, according to CoStar data.
By the end of 2020, the tech industry accounted for about one-fifth of the country’s total office leasing activity, according to data from CBRE, as some of the largest companies — including Meta, iPhone maker Apple, software and gaming giant Microsoft and investment platform Robinhood — invested in the idea that offices would play a critical role in the future of work.
In the years since the pandemic started, many large tech firms gobbled up real estate across the country as they raced to keep up with record headcount growth and spend the money coming in thanks to a pandemic-related surge in business. Meta alone leased more than 2.2 million square feet of office space in New York City between 2020 and 2021.
That growth spurt came to a halt earlier this year, however, as macroeconomic concerns such as the war in Ukraine, extended pandemic-related lockdowns and rising inflation rates spurred companies to rethink their spending.
And while economic uncertainty is playing a larger role in tech companies’ decision to reduce real estate holdings, so too are the long-term ramifications of remote work.
San Francisco-based Airbnb, for example, has offloaded a string of offices across the Bay Area over the past year to drastically reduce its national real estate footprint. The move is part of an effort to curb capital expenditures and adapt to a workforce that has become far more dispersed as a result of its decision to permanently implement a “work from anywhere” model earlier this year.
Shortly after Airbnb put the entire 150,000 square feet it took at the office building at 999 Brannan St. up for sublease in late September, the home-sharing company also began hunting for takers to fill about 300,000 square feet across two buildings in the Silicon Valley suburb of Santa Clara, according to Cushman & Wakefield marketing materials. The properties at 4301 and 4401 Great America Parkway are the latest sublease listing Airbnb has flooded to the Bay Area office market.
The company has offloaded space in six buildings it occupied prior to the pandemic.
Airbnb said in a statement that the company changed its office presence to adapt to its “live and work anywhere” model, but will keep some of its space in San Francisco and the South Bay areas.
While most of the downsizing decisions have dealt hefty blows to the bi-coastal office markets, tech companies are also backing away from space they lease in mid-tier, up-and-coming tech hubs.
Robinhood plans to close another five offices after it said in August it would permanently shutter two it leases in Arizona and North Carolina. The additional locations have yet to be publicly revealed, but the Menlo Park, California-based fintech told the Securities and Exchange Commission in a late September filing that the move to close more offices will result in restructuring charges of $90 million to $105 million, up from a previous estimate of $45 million to $60 million.