Vacant Offices Are Piling Up in Silicon Valley

Meta said last year that it was taking $2 billion in charges to consolidate offices as it downsized.
Meta said last year that it was taking $2 billion in charges to consolidate offices as it downsized.

Summary

  • Layoffs, hybrid-work patterns are reducing corporate footprints in Northern California towns

Silicon Valley companies are dumping office space at an accelerating pace, as tech leaders such as Google and Facebook parent Meta Platforms close locations and reassess their commitments to the workplace.

Office-vacancy rates in Silicon Valley, which includes the Northern California communities of San Jose, Palo Alto and Sunnyvale, were up to 17% in June from 11% in 2019, according to data firm CoStar Group. In some spots, such as Menlo Park and Mountain View, the rate surpassed 20% this spring, CoStar said.

The level of surplus office space remains below what is available just north in San Francisco, where the vacancy rate has more than tripled from 2019 to more than 25%. But some analysts and investors expect Silicon Valley will narrow the gap because tech companies are going through layoffs and are shedding unwanted floors.

“There’s not a lot of technology demand in the market today," Douglas Linde, president of office owner Boston Properties, said on the company’s earnings call in April.

Leasing activity at the office tower his company is developing in San Jose has been practically nonexistent. “There are no conversations going on there," he said on the call.

San Francisco’s vacancy rates rose faster and sooner than in Silicon Valley, in part because much of the demand in the city was fueled by smaller firms that were quicker to cancel leases, according to brokers and landlords.

Silicon Valley offices are dominated by top companies such as Google, Meta and Apple, which have been slower to give up space in a market that is usually tight. “Historically those firms almost never gave up space," said George Fox, executive vice president with commercial real-estate services firm CBRE Group.

Rising office vacancies in Silicon Valley have worried the region’s retailers, restaurants and other small businesses that depend on tech employees. Google, a unit of Alphabet, prompted concerns in San Jose earlier this year when it said it was rethinking when it would break ground on its planned Downtown West project, which is slated to take up 80 acres in that city and provide space for up to 25,000 employees.

Several big tech companies, including Amazon, Lyft and Salesforce, are calling their workforces back to the office at least part time, according to Scoop Technologies, a software firm that monitors workplace strategies.

Google, which requires most workers to be in the office three days a week, recently sent a companywide email telling workers that office attendance would be a part of performance reviews.

But such return-to-office policies haven’t stopped the firms from slashing their office footprints—a trend that can be seen playing out in the sublease market, where a record 7.6 million square feet of office space is available in Silicon Valley, up from 2.7 million in 2019, according to CoStar.

“Tech companies have done their research," says Nigel Hughes, a CoStar senior market analyst, “and they’re starting to let space go."

Google recently made available for sublease 1.3 million square feet of office space in Mountain View and Moffett Park. The move was part of a program Google announced in February, when it said it would incur $500 million in costs to reduce its office space as it lays off workers and moves to a hybrid workplace.

Meta recently put on the market another 700,000 square feet of Silicon Valley office space related to shutting offices in Sunnyvale, according to brokers. The company said last year that it was taking $2 billion in charges to consolidate offices as it downsized.

Many large tech companies went on hiring binges during the early years of the pandemic as business boomed. Even though they allowed most of their employees to continue working from home, they held on to their office space anticipating that they would need it when their expanded workforce returned to their prepandemic spaces.

It hasn’t worked out that way. Silicon Valley has had one of the lowest return-to-office rates, according to Kastle Systems, which tracks security swipes in office buildings. In the first week in June, the return rate in San Jose was 39% of its prepandemic level, the lowest of the 10 cities Kastle tracks. The average was 50%.

Falling office demand isn’t limited to the Valley’s tech giants. Vacancy along Sand Hill Road, one of the world’s most prestigious addresses for venture-capital firms, has more than tripled since 2019 to about 14%, according to CBRE. Andreessen Horowitz, one of the largest venture-capital firms, still maintains offices on Sand Hill Road but said it was operating “primarily virtually."

Tenants looking for space now have more choices than ever. Landlords are willing to cut rents or offer free months of rent and other incentives to maintain occupancy, brokers say.

“There’s probably never been as much opportunity to move into better space," said Derek Daniels, research director for the San Francisco region for Colliers International.

Catch all the Technology News and Updates on Live Mint. Download The Mint News App to get Daily Market Updates & Live Business News.
more

topics

MINT SPECIALS

Switch to the Mint app for fast and personalized news - Get App