Big Tech backs off property expansion—could other businesses follow?

The news: Big Tech companies like Meta and Amazon are pulling back on planned office expansions as more employees opt for remote work, per Bloomberg.

Where Big Tech leads, most businesses follow: Many companies waited for guidance from Google, Apple, Amazon, and others before enacting their remote work strategies, and their moves on physical locations will be watched closely.

Big Tech companies went on a real estate shopping spree during the pandemic. In context, Google, Meta, Microsoft, and Amazon, amassed more than 8 million square feet of space in Manhattan to better position themselves for expansion and talent acquisition.

Now, Meta and Amazon are cutting back on office expansions. 

• Meta backed off taking an additional 300,000 square feet of space at 770 Broadway and is pausing plans to build offices in its Hudson Yards property.
• “We are working to ensure we’re making focused, balanced investments to support our most strategic long-term priorities,” said Meta spokesperson Jamila Reeves.
• Amazon, which purchased the Lord & Taylor building in midtown Manhattan for $1 billion in 2020, has similarly reduced the square footage it had intended to lease from JPMorgan Chase & Co.

Google is increasing office investments: Google, on the other hand, is maintaining its expansion plans and intends to spend $9.5 billion on offices and data centers in the US, mostly to support the 12,000 new full-time jobs it aims to fill by the end of the year. 

• Existing offices and campuses already in operation in Pennsylvania, New York, and Massachusetts will all get upgrades.
• "It might seem counterintuitive to step up our investment in physical offices even as we embrace more flexibility in how we work," Google CEO Sundar Pichai said in the blog post announcing the investments. "Yet we believe doing so will make for better products, a greater quality of life for our employees, and stronger communities."
• Google is spending to maintain campuses and offices it already owns, in contrast to Meta and Amazon, either for occupancy by its employees or for leasing to potential customers.

The problem: Real estate prices aren’t coming down, which means businesses might aim for a more permanent solution to their low in-office staffing issues, especially as five- and seven-year leases expire. 

• Solutions could range from cutting down their office footprint to setting up remote office hubs designed for hot desks and transient workers while maintaining remote work strategies. 
• Recent backpedaling on offices and expansion could cause a ripple effect across manifold industries cutting back on office space plans. This could challenge the office market in various cities.