Big tech once appeared to be a savior in the office market’s uncertain future. A year later, it’s more of a harbinger of potential doom.
Leasing by tech companies fell drastically in the fourth quarter, down 57 percent across the country from the previous quarter, according to Savills data reported by Bisnow. The report noted 2.2 million square feet leased in the fourth quarter was barely a quarter of the 8.5 million square feet from a year earlier.
The industry spent more than a decade on top of office leasing. That lead changed in the second half of last year as companies economic headwinds set off waves of layoffs across major firms, reducing their need for office space.
Around 74,000 employees in the sector were laid off in the fourth quarter, according to Savills, and data from Layoffs.fyi say more than 190,000 in tech lost their jobs in 2022.
The industry’s total share of office leasing at the end of the year was 16 percent, down from the 21 percent in 2021.
There’s a decent chance there will be a further retreat from leasing by tech companies, or firms placing offices up for sublease so they can circle back during more optimistic times. This month alone saw tens of thousands of cuts across major firms including Alphabet (12,000), Amazon (18,000) and Microsoft (10,000).
Lower office lease volume from big tech could allow smaller technology firms to carve out space. Additionally, asking rents could drop as demand eases.
In Manhattan, the largest U.S. office market, pullback among tech companies’ plans for space opened the door for financial, insurance, real estate and law firms to fill the void. Tenants in these sectors, previously backstops of the borough’s office leasing, accounted for 38 percent of deals in the fourth quarter, according to Colliers. Technology, advertising, media and information were only responsible for 23 percent.
— Holden Walter-Warner