'Most-Hated Asset Class': Silicon Valley Office Pros On Piling Problems

Office owners in Silicon Valley are coping with a cascading set of challenges that began years ago with the pandemic and continue today, creating an environment in which they are faced with both cyclical and structural obstacles ranging from basic market fundamentals to the impact of cutting-edge technology.

These challenges were at the root of deep concerns expressed by office developers and owners at Bisnow’s State of Silicon Valley event at The Offices at San Antonio Station in Mountain View on April 27. 

“If you are the owner of an office asset, I don’t need to tell you that you are the proud owner of the most-hated asset class in America,” Briggs Development President Jeremy Rogers said during the event. 

Rogers joined speakers who expressed sentiments ranging from cautious optimism to bleak pessimism. 

Razmig Boladian, managing partner of Rubicon Point Partners, said part of the turbulence in the office market is due to macro issues like high interest rates, but he said anxiety persists over the long term, particularly in tech-dependent Silicon Valley. 

“With cyclical issues, you can weather the storm while interest rates are high and companies are trying to be profitable,” he said. “But the structural ones are what we are all trying to figure out.”

Part of what those involved in the office property sector are trying to figure out is whether the remote work trends that began prior to the pandemic but have accelerated since are here to stay. 

Rogers said he doesn’t think so. 

“Return to office is a function of the labor market,” he said. “What I mean by that is that as folks become more concerned about their job prospects and the labor market gets weaker, they become more and more likely to return to the office.”

The tech sector has seen more than 600 companies lay off a running total of about 184,000 employees in 2023, according to layoffs.fyi.

The argument for a return to the office remains complex, with a recent study finding that being in an office doesn't necessarily translate into increased productivity but that in-person work does provide for more feedback and teamwork. 

“Companies overwhelmingly agree their workers are more effective when they are in person at the office,” Rogers said.

A weak labor market removes some of the employee leverage to insist on remote working policies, he added.

“I think we’ll move toward fixed hybrid,” Boladian said. “It means that there will be three days where you’re in the office because we are not going to keep changing sites.”  

However, Rogers said that while remote work contributes to the present lack of demand for office space, the development of AI could prove to be one of the longer-term threats to the industry. 

“Artificial intelligence is going to have a profound impact on the office,” he said. “We are going to start seeing engineers who are five to 10 times more effective, more productive than they were before they had these artificial intelligence tools.”

Under this scenario, a company’s ability to operate more efficiently will put more pressure on headcount reduction. 

“For that reason, there will be fewer employees, less square footage, and that is going to be a major issue for the office market,” he said. 

Rogers said the future of office may not be the large, single-tenant buildings that have cropped up around Silicon Valley and San Francisco but may instead be the smaller, multitenant buildings tailored to companies with smaller headcounts who want to be lean and nimble with their office space. 

“There’s going to be demand for smaller office, and lots of it,” he said. “So that’s where we would like to be.”