Is Covid taking the T out of TAMI?
What Big Tech’s #WFH trend means for the New York City and Silicon Valley office markets
For those in the very physical world of commercial real estate, recent news from one of the internet’s largest companies has been hard to swallow.
Mark Zuckerberg’s announcement that many of Facebook’s 48,000 employees can work from home indefinitely — while the social media giant taps pools of talent in smaller markets — has rattled office landlords and many of their brokers. The decision, which Zuckerberg made public in late May, echoed similar messages from Twitter and Shopify.
But while some say the move could spell the end of major office leases for tech firms, many in the real estate industry have been quick to counter that the changes won’t be too far reaching.
“I think we have to put everything in perspective,” Bill Rudin, head of Rudin Management and chair of the Real Estate Board of New York, told The Real Deal in an Zoom interview before the city’s first phase of reopening started.
“All Facebook’s products are related to the internet and people interacting in a virtual world,” he said.” Fortunately, we live in a real world, where human interaction is critical.”
No matter how you slice it, though, one of the fastest growing sectors in commercial real estate — with lease deals that have overshadowed those of banks and law firms in recent years — is now caught in limbo. Tech’s seemingly insatiable need for office space has been hit with a pair of contradictory messages in less than a month.
I don’t think anybody has a tremendous amount of clarity about this thing. People are wondering what to do.
On one end of the spectrum, the announcements from Facebook, Twitter and Shopify raise new questions about whether a temporary measure to help stop the spread of Covid-19 could lead to a permanent shift in how tech firms view office space.
On the other end, newcomer TikTok signed a lease for 232,000 square feet in the Durst Organization’s Times Square building One Five One — Manhattan’s first six-figure office lease deal since the pandemic ground most of the city’s real estate activity to a halt.
“Facebook, Amazon, Google and others have put a lot of money and effort into creating terrific campuses,” said Columbia Property Trust CEO Nelson Mills, Twitter’s landlord at its Chelsea headquarters. “They’ve done that for efficiency and productivity, security [and] also for cultural reasons. Those drivers still exist.”
Others say the long game for influential social media, e-commerce and other tech firms could lie somewhere between gobbling up space at pre-pandemic levels and rejecting traditional offices as relics of the past — especially if property owners won’t budge on rents. One of the biggest frustrations for commercial landlords and brokers since March has been the uncertainty about what the public health crisis and economic downturn will mean for tech companies in the long run.
“I don’t think anybody has a tremendous amount of clarity about this thing,” said Youngwoo & Associates’ Bryan Woo, whose company has a major lease with Google at Pier 57 in Manhattan. “People are wondering what to do.”
Out of office
Sacha Zarba, a tech office leasing broker at CBRE, said that while he’s not concerned about a massive drop in demand for office space across the board, it will be tough to make a final call on any company’s strategy until a vaccine hits the market.
Despite Twitter’s new WFH policy, the company has no plans to close or shrink any of its offices, a company spokesperson told TRD.
“I don’t think we get a real answer on this or a real firm direction … until we see the ebb and flow of employees and what they decide to do post-vaccine,” he said.
While the long-term strategies among tech firms remain up in the air, none of the big companies expect all of their employees to return to the office in the next few months.
Amazon employees who can effectively work from home can continue doing so until at least Oct. 2, according to a company spokesperson.
Google plans to start opening more buildings in more cities starting July 6, though returning to the office will be voluntary for most employees through the end of the year, the company’s CEO Sundar Pichai wrote in a blog post in late May.
“Our campuses are designed to enable collaboration and community — in fact, some of our greatest innovations were the result of chance encounters in the office — and it’s clear this is something many of us don’t want to lose,” Pichai wrote. He also noted that Google is “very familiar with distributed work as we have many offices around the world and open-minded about the lessons we’ll learn through this period.”
Google declined to comment beyond Pichai’s post. Netflix declined to comment on the company’s work from home plans, and representatives for Apple and Facebook did not respond to requests for comment.
And despite Twitter’s announcement that some employees can work from home for as long as they want, a spokesperson for the company told TRD that it has no plans to close or shrink any of its offices.
Twitter’s Manhattan headquarters encompasses more than 200,000 square feet at Columbia Property Trust’s 245-249 West 17th Street, and Mills said he remains confident in the company’s tenancy there. “We’re not worried about Twitter in particular. They’re committed to the space,” Mills said, adding that he believes “other tech companies will continue to expand their footprints in Manhattan.”
Twitter, which launched in March 2006, has become one of the tech world’s more established social media companies with about 5,0000 employees and a market cap of more than $25 billion. By comparison, the Chinese video sharing service TikTok first hit the internet in September 2016 and has rapidly grown over the past few years with offices in Asia, Europe and the U.S. As of now, most of TikTok’s U.S. employees are based in Culver City, California.
Representatives for Durst and TikTok did not respond to requests for comment.
The record amount of office leasing in New York City in recent years has largely come from the tech industry, according to Newmark Knight Frank tri-state president David Falk. And though some companies have offered employees the option to work from home indefinitely, Falk said he doesn’t see enough people taking advantage of that to lead to significantly smaller tech offices.
“People have been told, ‘You have to work remotely’ for the last 11 weeks. They didn’t choose to do this,” he said. “The problem with remote working is it’s not for every job function or every person.”
At the same time, most of the Big Tech giants have inked large office deals in San Francisco in recent years. These include Facebook’s more than 750,000-square-foot lease in Park Tower, Google’s 140,000-square-foot lease at 215 Fremont Street and Amazon’s leases totaling more than 300,000 square feet at 525 Market Street.
Scott Harper, a Colliers International broker in San Francisco, said the rapid rate at which tech firms have expanded their office footprints in recent years has put the city in a strong position to deal with a slower rate of growth in the sector. If those companies decide to take up less space in the city post-pandemic, he said, other tech startups would likely make up the difference.
“As the financial sector has reduced its footprint, technology has more than made up for it,” Harper said. “And I still think you’ll see some of that going forward, maybe just not at the rate we’ve been blessed with over the last few years.”
Although Silicon Valley remains the stronghold for most of the country’s largest tech companies, many have dramatically increased their office presences in the Big Apple in recent years.
Google purchased the Chelsea Market building for a near-record $2.4 billion in 2018 and inked a 1.3 million-square-foot lease at St. John’s Terminal in Hudson Square last year. Facebook recently leased 1.5 million square feet of office space across three Hudson Yards buildings and is closing in on a deal for 740,000 square feet at the Farley Building. And Apple reportedly inked a 220,000-square-foot lease in February at Vornado Realty Trust’s 11 Penn Plaza.
And while Amazon famously backed out of its plan to build part of its HQ2 in Long Island City last year, the e-commerce behemoth has still been increasing its presence in New York, buying the Lord & Taylor Building from WeWork for $1.15 billion and signing a lease for 335,000 square feet in 2019 at SL Green’s 410 10th Avenue on the Far West Side.
Woo said it would be “silly” to assume there won’t be any changes to the way tech companies view office space in dense cities like New York. He maintained that at least a partial slowdown is inevitable. “To a certain degree, it’s unquestionable that there’s going to be a decrease in demand for office space — at least in the short term,” he said. “It’s a question of how much.”
But Woo said he also believes the city will retain its appeal to tech companies, given how much they’ve invested in New York over the years. Office landlords will still be eager to have them, he added, as long as they still have good credit and can pay competitive rents.
Julie Samuels, executive director of the nonprofit Tech:NYC, said she expects more employers in the field to let their staffers work from home, “because it’s frankly been pretty easy for tech companies to work from home.”
But even though New York emerged as the center of the global pandemic this spring, Samuels said remote working may end up being less permanent in the five boroughs than in other markets.
“People who live in New York are attracted to so much of what city life uniquely offers, and a big part of that is being out and about,” she noted. “And whether that’s going out for a meal or meeting up with friends or going to an office, it’s just part of the culture here.”
If any sector will look to aggressively reduce its office space, Falk said he thinks it will be what has rapidly emerged as one of the pandemic’s biggest punching bags: the retail industry.
“What’s not doing well right now is corporate offices for major retailers,” he said. “These companies need to save money.”