US tech companies are causing a record high in vacancies in city centers following post-pandemic austerity measures. Big Tech firms such as Alphabet, Microsoft, Meta, Amazon, and Co. are now reducing millions of square meters of office and commercial space. These companies have announced plans to decrease their office space, with Amazon having already halted construction on its second headquarters outside of Washington. Over 16 million square feet of office space is available for subletting in the US, which is double what it was before the pandemic, according to real estate agents.
The decline in employee and warehouse space shows how “the tech downturn” that led to the collapse of Silicon Valley Bank and troubles in the financial markets is now affecting the economy in general. San Francisco, Seattle, and New York are the cities hit hardest by the withdrawal of big tech companies from commercial space. The decline in demand has raised pressure for property owners to refinance their vacant home loans as interest rates increase.
During the pandemic, tech companies were the main source of growth for landlords with aggressive hiring policies and the corresponding need for office and commercial space. The best locations for offices were favored by tech companies during the economic boom. However, Americans have now returned to their pre-Covid behaviors, leading to Big Tech firms making cost savings. For example, listed tech companies are estimated to save $3.4 billion in real estate-related expenses, according to Bloomberg.
The report reveals that companies like Meta and Twitter will not renew their leases for various offices in the US, Microsoft plans to vacate a significant portion of its leased space in Seattle, and Amazon will not renew two large existing leases in Seattle. Google is terminating leases on a number of vacant spaces, and Netflix wants to sublet two large buildings at its headquarters in Los Gatos, California. As a result, office landlords face a $53 billion funding gap by 2025, according to commercial real estate services and investment company CBRE.
The decline in tech company presence has also affected the wider economy, with institutional investors halting loan servicing for loans above $1 billion secured from rental income from tech giants. Pedestrian numbers in Seattle have decreased by over half compared to pre-pandemic levels, causing the city’s restaurants and sidewalks to be deserted. Although more employees have begun returning to work in cities following the pandemic’s initial stages, more flexible working hours provide more off-office days in home offices.
