Shulou(Shulou.com)11/24 Report--

November 16 news, over the years, large technology companies in the process of expanding their business, continue to push up the demand of the U. S. office market. Now these companies are starting to downsize, canceling commercial leases for office space.

Facebook parent companies Meta, Lyft, Salesforce and other technology companies are reducing office space in San Francisco, Silicon Valley, New York, Austin, Texas and elsewhere, totaling tens of millions of square feet. Amazon, the US e-commerce company, announced in July that it would suspend hiring and stop building new office buildings, and this week it announced that it would cut nearly 10,000 jobs.

Despite an overall decline in corporate office rental space in the past two years, the technology industry still accounts for the largest share of the real estate market, according to real estate services company CBRE Group. In the meantime, some technology companies such as Google, owned by Alphabet, have even continued to expand their office space.

Now, as fears of a recession grow and companies cut jobs, technology companies find themselves owning too many office buildings and want to sell a lot of office space instead.

Technology companies have allocated about 30 million square feet of office space to the sublet market, more than double the 9.5 million square feet in the fourth quarter of 2019, according to CBRE.

"the threat posed by layoffs is much greater than working from home," said Nicholas Bloom, an economics professor at Stanford University.

The reduction of office space by large technology companies is a blow to the U. S. office market and the economy of many cities. For years, many American cities have relied on real estate demand in the technology industry to drive economic growth.

According to statistics firm CoStar Group, the national office vacancy rate is 12.5%, up from 9.6% in 2019 and the highest level since 2011. The total area of subleases on the market is about 212 million square feet (1970 million square meters), the highest since CoStar began tracking the data in 2005.

According to statistics firm Trepp, at the end of the second quarter, commercial real estate debt totaled $5.4 trillion, of which $1.2 trillion was office debt, second only to apartment debt. If more landlords have high default rates on mortgages because they are unable to rent, their woes could spread to the financial system as a whole.

It has become a common fact that technology companies have turned to reducing office space. In dozens of cities such as Pittsburgh, Baltimore, Nashville, San Diego and Detroit, the technology industry is the main driver of local office demand growth. In total, technology companies have about 500 million square feet (4645 square meters) of office space in 30 North American cities, according to CBRE.

San Francisco was particularly affected. Companies rented only 850000 square feet in the third quarter, compared with an average of about 2 million square feet per quarter in the five years before the outbreak, said Derek Daniels, director of research at commercial real estate service Colliers International in San Francisco.

Salesforce is one of the largest employers in San Francisco. This year, the company said it was considering reducing office space in its 43-story building in downtown San Francisco by about 1/3.

"in the early summer of this year, there was a new rental boom," Mr. Daniels said. "but it's been quiet since then."

At the same time, other technology companies are considering reducing office space, as are cities with fast-growing technology companies such as Austin in the US. Earlier this year, Meta, which agreed to become a major resident of a skyscraper under construction in the Texas capital, is now trying to sublet the property.

For quite a long time, technology companies are often the largest owners of new office buildings. Although many companies have switched to a mixed office model in the past two years, many technology companies are still hiring heavily to rent office buildings. In addition, technology companies prefer high-end commercial real estate in cities. They believe the move will help attract top talent and encourage landlords to spend heavily on high-quality commercial real estate.

Today, the shift in office requirements for these companies may mark the end of a long cycle.

Colin Yasukochi, executive director of CBW's technology insight centre, said technology companies were "trying to increase office space" last year in order to recruit and retain talent in a highly competitive labour market. He added that after hiring tens of thousands of employees, the company always felt that "the worst thing that could happen is that people flock back to the company and we don't have enough office space."

The technology industry accounted for 20.5 per cent of US office rental activity in 2021, ahead of all other industries, according to CBRE. By contrast, the financial sector and the business services sector each accounted for 16 per cent.

Large technology companies are not only renting office buildings, but also big buyers of urban commercial real estate. Amazon bought the Lord & Taylor department store in Manhattan for $978 million, and Facebook bought an office park in Bellevue, Washington, for $368 million.

The demand for office space in the technology industry over the past decade is different from that during the dotcom boom of the 1990s. At that time, the company will lease office buildings in anticipation of business growth. When the dotcom bubble burst, "a lot of rented office buildings were never used," said Alexander Goldfarb, a senior analyst at Piper Sandler, an investment bank.

"you don't feel that way this time," he added. "Technology has become a growing industry. Technology giants seize office buildings and quickly fill up employees, and are committed to opening up new office space."

Now, the company's most worried thing about telecommuting has not become a reality. On the contrary, the decline in demand for office space by technology companies is due to a reduction in the number of employees. This month, both Lyft and Meta said they would cut jobs by 13%.

Anheitian expects the layoffs to continue to affect technology companies' demand for office space. "the momentum of layoffs is increasing," he said. "

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