Finance

The Big Tech office isn’t dead. Here’s why giants like Facebook and Amazon keep gobbling up space while telling workers they can stay home.

  • While many large companies have been shrinking their office footprints, big tech firms like Google, Facebook and Amazon are doing the opposite.
  • Growth prospects for tech companies have been getting even stronger during the pandemic. Most also believe that flexible working arrangements won’t diminish the importance of offices for recruiting and collaboration. 
  • Tech office leasing is holding up much better than the overall market. 
  • Visit Business Insider’s homepage for more stories.

Big Tech set the standard for caution in recent months in the growing debate over when and how companies should return to the workplace amid Covid-19.

As the coronavirus started spreading in the US, firms like Google, Facebook, and Twitter were among the most aggressive to close their offices, allow employees to work remotely, and push off plans to return as the pandemic shuttered daily life and commerce. Some, including Facebook and Twitter, expect remote work to become a permanent fixture of their operations. 

Yet even as uncertainty continues to cloud when and even if tenants will come back to the office, those same tech giants have continued to lap up space at a moment when virtually no other large office users have been active and many are seeking instead to downsize their footprints. 

Key to understanding this apparent contradiction is the position of relative strength that many tech companies have found themselves in and their expectations for future growth— plus their view that flexible working arrangements won’t diminish the importance of offices.

The activity, seen in Facebook’s recent deal to lease 730,000 square feet on Manhattan’s West Side and Amazon’s March decision to purchase the Lord and Taylor building on Fifth Avenue for $1.1 billion as its NYC headquarters suggests that tech firms are banking their employees will return to their desks and that the office and its perks will again serve as key recruitment and retention tools.

Read more: Facebook just reached a blockbuster deal to lease the massive Farley Building in NYC as a tech and engineering hub. Here’s why it’s a huge win for a shaken office market.

“Companies rightfully so are right now giving a lot of power to their employees in terms of whether they’re going to return and when and, because of that, so much of the leasing activity in the market is frozen,” said Sacha Zarba, a vice chairman at CBRE who specializes in arranging leasing transactions with tech companies.

“These recent leases that we’ve seen from the industry support the fact that they do believe in the viability of the office and over the long term they assume their employees will want to come back, and you’re seeing them plan for that.”

Zarba recently represented the social-media video sharing service TikTok in its recent deal, signed during the pandemic, to take over 200,000 square feet in Times Square. The company, which Oracle, Walmart, and Microsoft are bidding on, is growing substantially in the deal from previous space it occupied in a WeWork location.

“They’re a case in point,” Zarba said. “Despite what they’re going through, they believe in the strength and importance of the office and have a long term outlook on New York City.”

In another recent sign that tech sees a future for office space, Apple is negotiating to add 60,000 square feet to an operations it recently opened at 11 Penn Plaza. Amazon just leased 35,000 square feet recently in Manhattan for its streaming video game service Twitch. Twitter, meanwhile, which has stated it will allow its employees to work from home permanently, is also planning to keep and occupy its Manhattan office, its landlord revealed recently to Business Insider. 

Read more: Apple is in talks to potentially expand its NYC footprint. It shows how tech is becoming a lone bright spot for a battered commercial real-estate market.

Many of the large office deals recently signed by big tech were begun before the pandemic. But sagging office rents have more firms thinking opportunistically and could prompt some to sign deals for space that demonstrate a growing belief that physical offices will play a key role in their longer-term growth. 

“Keep in mind, real estate is a slow-moving ship,” Steve Billigmeier, an executive managing director of Cushman & Wakefield, told Business Insider.

Since the pandemic hit, many tech companies have only seen their fortunes grow. Apple recently became the first publicly traded US company to surpass $2 trillion and Amazon shares have nearly doubled since the beginning of the year, even as the larger economy has gone through an historic contraction. That, along with the fact that office rents are sinking as leasing activity has plummeted, has left many well-heeled tech tenants in a unique financial position to double down on the future of the workplace. 

“It’s causing a lot more tech companies to come off the sidelines and think opportunistically,” Zarba said. “We are having numerous conversations a week with clients who are actively evaluating the market and the hope is that translates into more transactions across 2021.”

Read more:IBM is on the hunt for a massive Manhattan space, showing that worries about the death of the big-city office may be overblown

Tech office leasing is holding up much better than the overall market

Despite the recent tech deals, leasing overall has tanked in major markets and even activity among tech companies — which comprised 22% of office leasing in the US last year, according to CBRE data —  has sharply dipped. 

Leasing activity in the second quarter in Manhattan, the nation’s largest office market by square footage and one of its most pricey, fell 70% off of the previous quarterly average of the past three years to just 2.5 million square feet, the lowest quarter of activity in 25 years, according to data from the commercial real-estate services firm and brokerage company Cushman & Wakefield.

Tech office leasing was not immune to that decline. But the sector’s 46% year-on-year drop in leasing activity in the second quarter nationally was significantly less severe than the falloff in the overall market, with the Bay Area and New York City reflecting the biggest dips in activity, according to Colin Yasukochi, executive director of the Tech Insights Center for Colliers.

“Right now, the tendency has been if you think you need space, hold off and try to renew for a short period of time,” Yasukochi said of the conservative approach he has seen and advised most tenants to take. 

Brian Rosenthal, a Facebook engineering director who co-manages the $800 billion company’s sprawling New York City operations, recently told Business Insider that its decision to take over 700,000 square feet at the Farley Building in recent weeks was prompted, in part, by the fact that the city continues to be such a magnet for talent. 

Read more: Facebook thinks in-person collaboration can’t be fully replicated remotely and is betting on physical office hubs in big cities as key recruitment tools

“One of the striking things about New York is that the people we have are New Yorkers first and they’re grateful that Facebook is growing a presence here because they’re excited to work for us, but their identity is being a New Yorker first,” Rosenthal said.

NYC and San Francisco may no longer be a magnet for young people

To be sure, there are early signs that New York City and San Francisco’s  longtime status as hotspots for young professionals may too be changing with the pandemic — and that could throw a wrench in Big Tech’s plans. 

Better.com, an online mortgage provider, saw a dip in the percentage of first-time purchasers in the Bay Area who applied to purchase a home in the nine-county region, from 66% in January to less than 60% in July. The site noted that first time home buying activity appeared to be shifting to up and coming metropolitan centers such as Denver and Austin. 

A Redfin analysis found that active home listings in San Francisco were up 137% year-over-year in the week ending August 16, according to listings data. 

That statistic suggested there could be an exodus afoot as workers flee expensive markets that were hit hard by the virusand explore their newfound freedom to roam as more companies embrace remote work. If that erodes the perception of major cities as critical centers of talent, interest from tech tenants could, of course, also wane. 

HubSpot, a marketing and software sales company based in Cambridge, MA, was already made up of about 10% remote workers before the virus. Katie Burke, the company’s chief people officer, has been surveying employees and recent graduates about the return to the office, finding that two-thirds of current employees plan to work more remotely in the future.

Burke said that HubSpot, with ten offices in nine countries, will now open in new countries and markets with only remote workers, and plans to make 70% of hiring location-agnostic in 2021. 

“I think and hope that what we’re going to find is that there is great tech talent everywhere,” Burke said. 

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