June 24, 2024

Tech Firms When Powering the New York Economy. Now they are Scaling Back.

For much of the past two decades, including during the pandemic, tech companies have been a fixture in New York’s economy, adding thousands of high-paying jobs and expanding into millions of square feet of office space.

Their growth won tax revenue, established New York as a credible competitor to the San Francisco Bay Area — and provided jobs. which helped the city absorb layoffs in other sectors during the pandemic and the 2008 financial crisis.

Now, the tech industry is pulling back hard, clouding the city’s economic future.

Facing numerous business challenges, major tech companies have laid off more than 386,000 workers nationwide since the start of 2022, according to layoffs.fyi, which tracks the tech industry. And they’ve lost millions of square feet of office space because of those job cuts and the shift to work from home.

That recession is hurting many tech hubs, with San Francisco the hardest hit with an office vacancy rate of 25.6 percent, according to Newmark Research.

New York is doing better than San Francisco—Manhattan has a 13.5 percent vacancy rate—but it can no longer rely on the tech industry for growth. More than one-third of the approximately 22 million square feet of office space available for sublease in Manhattan comes from technology, advertising and media companies, according to Newmark.

Consider Meta, which owns Facebook and Instagram. It has been offloading a large chunk of more than 2.2 million square feet of office space in Manhattan in recent years after laying off about 1,700 employees this year, or a quarter of its New York State workforce. The company chose not to renew leases covering 250,000 square feet in Hudson Yards and 200,000 square feet on South Park Avenue.

Spotify wants to sublet five of the 16 floors it leased six years ago in 4 World Trade Center, and Roku is offering a quarter of the 240,000 square feet it took in Times Square just last year. Twitter, Microsoft and other tech companies are also looking to lease unwanted space.

“The technology companies have been such a big part of the real estate landscape for the past five years,” said Ruth Colp-Haber, chief executive of Wharton Property Advisors, a real estate brokerage. “And now that they seem to be cutting back, the question is: Who will replace them?”

Mr Colp-Haber said it could take months to sublet larger spaces or entire floors of buildings. The large amount of space available for subletting is also reducing the rents that landlords are able to obtain on new leases.

“They’re going to undercut every landlord out there in terms of pricing, and they have very nice spaces that are already built out,” she said, referring to the technology companies.

The tech sector has been a driver of New York’s economy since the dot-com boom of the late ’90s helped establish “Silicon Alley” south of Midtown. Then, after the financial crisis, the expansion of companies like Google supported the economy when banks, insurers and other financial firms were retreating.

Small and large technology companies added 43,430 jobs in New York in the five years through the end of 2021, a 33 percent gain, according to the state governor. And those jobs paid very well: The average tech salary in 2021 was $228,620, nearly double the average private sector salary in the city, according to the lawmaker.

Job growth has fueled demand for commercial space, with technology, advertising and media companies accounting for nearly a quarter of new office leases signed in Manhattan in recent years, according to Newmark.

Microsoft and Spotify declined to comment on their decision to sublease space. Twitter and Roku did not respond to requests for comment. Meta said in a statement that it was “committed to distributed work” and was “continually refining” its approach.

Some big tech companies are still expanding in New York.

Google plans to open St. John’s Terminal, a large office near the Hudson River in Lower Manhattan, early next year. Including the terminal, Google will own or lease about seven million square feet of office space in New York, up from about six million today, according to a company representative. (Google leases more than a million square feet of that space to other tenants.) The company has more than 12,000 employees in the New York area, up from more than 10,000 in 2019.

However, Amazon, which canceled plans to build a large campus in Queens in 2019 after local politicians objected to the incentives offered to the company, has added 200,000 square feet of office space in New York, Jersey City and Newark starting in 2019. The company will add about 550,000 square feet of office space later this summer, when it bought 42 square feet of office space later this summer, when it opened the former F. 20 store for $1.15 billion.

“New York provides an incredibly diverse talent pool, and we’re proud of the thousands of jobs we’ve created in the city and state over the past 10 years across both our corporate functions and operations,” said Holly Sullivan, vice president of global economic development at Amazon, in a statement.

And while many tech companies continue to let employees work from home for much of the week, they’re trying to lure workers back to the office, which could help reduce the need for sublet space.

Salesforce, a software company with offices in a tower near Bryant Park, said it was not considering subletting its New York space.

“Right now I’m facing the other problem in the tower in New York,” said Relina Bulchandani, Salesforce’s head of real estate. “There has been a concerted effort to continue to add the right roles in New York because we have a very high customer base in New York.”

New York is and will continue to be a vibrant home for technology companies, industry representatives said.

“I haven’t heard of a single high-tech company leaving, and that’s important,” said Julie Samuels, president of TECH:NYC, an industry association. “If anything, we’re seeing less of a contraction in New York among tech leases than we’re seeing in other big cities.”

Fred Wilson, a partner at Union Square Ventures, said tech executives now felt less of a need to be in Silicon Valley, a change he said benefited New York. “We have more company CEOs and more company founders in New York today than we had before the pandemic,” said Mr. Wilson, referring to the companies his firm has invested in.

David Falk, president of the New York tristate region for Newmark, said, “We are currently working on a number of transactions with smaller, young technology firms that are looking to take sublease space.”

However, many businesses are still pulling back.

In 2017 and 2019, Stockholm-based Spotify signed leases worth more than 564,000 square feet of space at 4 World Trade Center, becoming one of the largest tenants there. It wasn’t long before there was a space with all the accoutrements you’d expect at a tech firm – colorful flexible work areas, eye-catching views and Ping-Pong tables.

But in January, Spotify said it was laying off 600 people, or about 6 percent of its global workforce. The company, which allows employees to choose between working entirely remotely or on a hybrid schedule, is also downsizing its office space, setting up five floors for subletting.

“On days when I’m alone, I’ll sit in a meeting room all day for focus time,” said Dayna Tran, a Spotify employee who regularly works in the downtown office, adding that the employees who come in motivate themselves and create community by collaborating on an office playlist.

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