More Than Half Of Tech Companies Plan To Dispose Of Real Estate In Coming Months

Technology companies across the country expect to need less office space in the coming years, a sign of falling demand in the commercial real estate market. 

Tenant representation firm Savills released a survey Thursday of 250 technology companies that found 82% anticipate needing less office space over the next 12 to 18 months, and 55% plan to dispose of existing space over that time period. 

This disposal of space is already happening in a big way, with a wave of sublease listings hitting the market, Savills Executive Managing Director Zev Holzman said. 

"Every day there is new sublease space hitting the market from tech companies of all sizes," Holzman said. "We're seeing a very steady flow of new subleases hitting the market."

Holzman said many of the sublease listings are between 10K SF and 20K SF, but one much larger space hit the market in the D.C. area last week. After signing a full-building, 162K SF lease in Herndon in April, Walmart Labs decided to keep its workers remote and instead put the entire space on the sublease market. 

In New York City, Zillow placed more than 150K SF on the sublease market in the third quarter, according to Savills, and Yelp placed a 58K SF office on Fifth Avenue on the sublease market. Among all sublease space put on the market since the coronavirus pandemic began in Manhattan, more than 44% has come from tech companies, according to Savills.

These subleases increase the overall availability of office space on the market and will likely lead to a drop in rents, Holzman said. While building owners seek to maximize income with their leases, tenants looking to sublease space are under more pressure to do a deal quickly than hold out for a higher price. 

"A subtenant who is simply looking to mitigate that expense is going to make a more aggressive deal than a landlord trying to maximize asset value," Holzman said. "As sublet inventory becomes a greater percent of overall availability, that puts pressure on direct rents."

Of the 250 technology companies Savills surveyed, 28% were headquartered in the San Francisco Bay Area, 19% were in New York, 12% were in D.C. and 12% were in Los Angeles. About 83% of the respondents have at least two offices. 

The widespread reduction in these companies' office space needs comes as they expect to keep more people working remotely over the long term.  

Before the pandemic, 7% of the tech companies said they had more than half of their employees working remotely. Now, 22% of the companies said they expect to keep more than half of their workforce remote for the long term, even after a vaccine is available. 

While he sees the percentage of long-term remote workers increasing, Holzman said he expects tech companies will keep some office space and won't go fully remote. 

"Very few companies are going to be 100% work from home," he said. "It's more likely we're going to see that there will be a greater work from home contingency at every company."

While having fewer workers in the office is leading technology companies to need less overall space, the pandemic is also pushing many to reduce the density of their workplaces. 

Before the pandemic, 71% of tech companies said their office density target was less than 150 SF per employee. Of those companies, 40% say they have not yet decided on their future density needs, 38% say they plan to increase their square footage per employee, 17% say they don't plan to change it and 5% plan to reduce it. 

"A number of companies are saying the old model of 125 or 150 SF per employee is dead, and that's not coming back," Holzman said.