The commercial real estate market has already been hit hard with the adoption of hybrid work policies. Could it get even worse as tech companies continue laying off workers amid the broader industry downturn?
Real estate leaders say it’s too soon to tell if the layoffs will cause a further pullback in leasing activity.
Total vacancy in the Seattle-area reached 16.7% in the fourth quarter of last year, the highest level in more than a decade, according to a new report from JLL.
Several tech giants are deciding to give up office space. Meta said this month it would sublease a 6-story building near downtown Seattle and a 325,000 square-foot space in nearby Bellevue, while Microsoft is will not be renewing its lease at a 561,494 square-foot space in downtown Bellevue.
Amazon is cutting at least 2,300 Seattle-area jobs, and The Seattle Times reported this month that the company is pulling about 2,000 employees from a downtown office building.
As part of its restructuring plan announced Jan. 4, Salesforce said it would cut 10% of its workforce and reduce its real estate footprint.
“As companies continue to re-evaluate their space needs and the economic outlook remains murky, expect the Puget Sound office market to remain tenant favorable and availability to continue to rise,” the JLL report noted.
As companies reduce headcount, the need for physical office space could deteriorate. Cutting expenses is also top-of-mind for some leaders with ongoing economic uncertainty.
However, even with the recent layoffs, many tech firms still have a much larger employee base compared to pre-pandemic levels.
“Theoretically their square footage occupied per employee is still at all-time lows,” Tim Harrison, research director for the Pacific Northwest at JLL, said in an email.
Harrison hinted that layoffs could actually become a forcing function to get employees back in the office.
“I think the next six months will be quite telling in how strict return-to-office policies will be and how many employees start coming into the office again out of fear of potential layoffs,” he said. “That will obviously directly impact how much of the space these companies have leased/built actually gets used.”
Office building attendance in downtown Seattle this past November increased year-over-year from 15-20% to 35-60%, according to a report from CBRE, as more companies establish in-office mandates.
But only a “trickle” of tech tenants signed new leases downtown in the fourth quarter of last year, according to CBRE. Leasing activity has shifted toward professional service, legal, and finance firms, the report said.
Companies are still opening new offices. Meta recently expanded in Bellevue’s Spring District and plans to open a new building, called Building X, in Redmond, Wash., this summer.
Microsoft is in the midst of a major redevelopment of its original Redmond headquarters — though the company recently confirmed to GeekWire that it is pushing back the timeframe for some buildings, saying it wants to make sure the interior spaces reflect the needs of employees and the requirements for office space in the new era of hybrid work.
Amazon similarly said this past summer that it was pausing work on several new office towers in downtown Bellevue to determine how its office floorplans need to be adjusted to reflect the new needs of employees.