Is tech sinking office space or saving it?

Tech companies led multiple revolutions in what office work looks like in this century. Google was the most well-known company to turn its offices into a "campus" with the amenities of a large resort, from free lunch to recreation, all designed to keep employees happily toiling away at the office as long as possible. They were the first to bring back defunct open-office plans that made cubicles and individual offices obsolete, and they took co-working spaces global. Are they now tanking the office as we know it? Or are they starting to claw their workers back from coffee shops and home office spaces, restoring the status quo ante of office work? It depends on who you ask.

Conflicting data

It's no secret that commercial real estate has been one of the sectors most stung by the Covid-19 pandemic, with national office vacancy rates up all over the country. Some believe there may even be a commercial real estate bubble that could pop and plunge the economy into a 2008-style tailspin. At the forefront of these developments are tech companies, whose meteoric rise in the 2010s helped blunt the overall effects of the Great Recession and drove a tremendous expansion in the commercial real estate sector during that decade.

In June, CNN reported that some tech giants, including Google, were implementing measures to get employees back to their offices, roiling workers who had moved or bought houses far from the office with the expectation of indefinite remote work but cheering small business owners and city comptrollers who rely on these workers for revenue. But the debate over remote work long predates pandemic-era shifts in work modalities. Way back in 2013, Yahoo CEO Melissa Mayer ruffled feathers by abolishing the company's work-from-home program. "To become the absolute best place to work, communication and collaboration will be important, so we need to be working side by side," Mayer said in a memo announcing the move.

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After all, the idea that the frisson of in-person socializing and collaboration in the office leads to creativity in innovation is deeply ingrained in tech circles. "If you want innovation, then you need interaction," San Francisco State University Management Professor John Sullivan told The New York Times in the wake of Mayer's announcement, citing research suggesting that while remote workers may be more productive, they aren't as innovative. That innovation can be found within or between companies where people work near one another. According to The Wall Street Journal, a 2022 working paper that studied co-working spaces found that "working in such close range allowed for socialization, which in turn led to idea sharing about the types of technology the startups were using as part of their overall tech infrastructure."

If innovation is or is perceived by management as crucial to their success, they are likely to continue looking for ways to entice employees to work together. That ethos drove the continued investment by tech firms in office space even in the darkest days of the pandemic. In February 2022, The New York Times reported that "the industry's search for land has been so extensive that it has surged through longtime tech hubs like Silicon Valley and into areas not traditionally known for their tech scenes." Tech giants like Alphabet (Google's parent company) and Apple were so flush with cash that they could "continue constructing offices without worrying about how much money they stand to lose if the buildings become obsolete."

Swift contraction

But that optimism is increasingly hard to square with developments in some markets, including New York City. In July, Curbed claimed that large tech companies including Kickstarter, Meta, Twitter, Uber and Yelp were reducing or eliminating their office footprints in Manhattan. The New York Times reported that music streaming service Spotify was abandoning 16 floors of World Trade Center 4 and that Meta, which owns Facebook, Instagram and Twitter rival Threads, was pulling out of hundreds of thousands of square feet of Manhattan real estate. Large tech firms have also paused or bailed on real estate developments in cities like Atlanta, where Microsoft retreated from a planned project called Quarry Yards, and Arlington, Virginia, where Amazon has paused a major office expansion.

The retreat from office space is affecting Silicon Valley as well, where The Wall Street Journal reported in June that office vacancy rates in San Jose hit 17% (up 6% from before the pandemic) and 25% in San Francisco. Unsurprisingly, those two cities featured the largest percentage of tech jobs as a share of overall employment opportunities before the pandemic. But the largest office vacancy rate in the country right now is in Houston, according to CommercialEdge, meaning that other factors are clearly at play in terms of the health of local commercial real estate markets, including completion of preplanned office projects during and after the pandemic that brought much more capacity online.

Throughout the 2010s in the U.S., tech companies overtook the finance sector to become the predominant player in commercial real estate markets. But those offices aren't evenly distributed by city. While smaller metro areas like Pittsburgh and Salt Lake City saw absolute growth in the tech sector throughout the 2010s, the overall trend was for an increased concentration of jobs, and thus office space, in a small number of major cities. The top 10 metro areas for tech jobs accounted for over 47% of job growth in the sector between 2010 and 2018, according to Brookings' Mark Muro, who lamented that the tech economy is "unleashing forces that benefit only a select group of elite regions, often to the detriment of everyone else."

Yet the very cities that most benefited from the post-recession tech boom are among those grappling hardest with commercial real estate vacancies. But rising office vacancy rates nationwide make it clear that tech firms aren't the only ones struggling to make sense of the new working landscape. And this remains an almost uniquely American crisis. In Asia and Europe, for example, return-to-office rates have been much higher. A February 2023 missive from The Wall Street Journal noted that in some Asian cities, "more people are in the office nowadays than before the pandemic," a function of shorter commute times, as well as less space for remote work at home than the typical American residence.

The bottom line

It's unclear whether these developments are permanent or driven by temporary struggles in the technology sector overall, which is undergoing a contraction. Deadline reported in June that 100,000 jobs in tech had been shed by both smaller and larger firms over the past year. That means that even firms that are committed to a future that includes office work are scaling back their footprints, both to accommodate new realities and smaller workforces and to "right-size" their office space for the reality of hybrid work schedules. So while it's clear that there's a tech-driven pullback in the commercial real estate market today, it's far less certain that the retrenchment is permanent.