For much of the past two decades, including during the pandemic, tech companies have been a bright spot in New York’s economy, adding thousands of high-paying jobs and expanding into millions of square feet of office space.
Its growth boosted tax revenue, established New York as a credible rival to the San Francisco Bay Area, and provided jobs. that helped the city absorb layoffs in other sectors during the 2008 pandemic and financial crisis.
Now, the tech industry is falling hard, clouding the city’s economic future.
Facing many business challenges, big 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 millions of square feet of office space have been pulled out because of those job cuts and the shift to working from home.
That reduction has hit many tech hubs, with San Francisco 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 vacancy rate of 13.5 percent), but it can no longer count on the tech industry for growth. More than a third of the roughly 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. Now it is dumping a large chunk of the more than 2.2 million square feet of office space it has gobbled up 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 opted not to renew the leases covering 250,000 sf at Hudson Yards and 200,000 sf on Park Avenue South.
Spotify is trying to sublet five of the 16 floors it rented six years ago at 4 World Trade Center, and Roku is offering a quarter of the 240,000 square feet it took in Times Square last year. Twitter, Microsoft and other tech companies are also trying to sublet unwanted space.
“Tech companies have been such a big part of the real estate landscape for the last 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 is going to replace them?”
Ms Colp-Haber said it could take months to sublet larger spaces or entire floors of buildings. The large amount of space available to sublet is also reducing the rents that landlords can get on new leases.
“They’re going to undercut all homeowners in terms of pricing, and they have really nice spaces that are already built,” he said, referring to tech companies.
The technology sector has been a driver of New York’s economy since the dot-com boom of the late 1990s 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 in retreat.
Small and large technology companies aggregate 43,430 jobs in New York in the five years to the end of 2021, an increase of 33 percent, according to the state comptroller. And those jobs paid very well: The median tech salary in 2021 was $228,620, nearly double the median private sector salary in the city, according to the comptroller.
Job growth fueled demand for retail 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 sublet space. Twitter and Roku did not respond to requests for comment. Meta said in a statement that she was “committed to distributed work” and that she was “continually refining” her 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 7 million square feet of office space in New York, up from 6 million today, according to a company representative. (Google rents out 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.
Amazon, which canceled plans to build a large campus in Queens in 2019 after local politicians opposed incentives offered to the company, has added 200,000 square feet of office space in New York, Jersey City and Newark since 2019. The company will have added approximately 550,000 square feet of office space later this summer when it opens 424 Fifth Avenue, the former Lord & Taylor department store, which he bought in 2020 for $1.15 billion
“New York offers a fantastic and diverse talent pool, and we are proud of the thousands of jobs we have created in the city and state over the past 10 years in our operations and corporate functions,” Holly Sullivan, Amazon’s vice president of global economic development, said in a statement.
And while many tech companies continue to allow employees to work from home for much of the week, they’re also trying to entice workers back into the office, which could help reduce the need to sublet space.
Salesforce, a software company that has offices in a tower next to Bryant Park, said it was not considering subletting its space in New York.
“I’m currently facing the opposite problem in the New York tower,” said Relina Bulchandani, Salesforce’s head of real estate. “There has been a concerted effort to continue to develop the right roles in New York because we have a very high client 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 tech company leaving, and that’s important,” said Julie Samuels, president of TECH:NYC, an industry association. “If anything, we are seeing less contraction in New York among technology leases than in other large 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 had benefited New York. “We have more company CEOs and more company founders in New York today than we did before the pandemic,” Wilson said, referring to the companies in which he has invested his company.
David Falk, Newmark’s president for the New York Tri-State region, said, “We are currently working on a number of transactions with younger and smaller tech firms looking to sublease space.”
Yet many companies continue to pull back.
In 2017 and 2019, Stockholm-based Spotify signed leases totaling more than 564,000 square feet of space at 4 World Trade Center, becoming one of the largest tenants there. Soon she had a space with all the accoutrements you’d expect in a tech company: brightly colored flex workspaces, stunning 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 fully remotely or on a hybrid schedule, is also downsizing its office space, moving up five floors to sublet.
“On days I’m alone, I end up sitting in a meeting room all day to focus,” said Dayna Tran, a Spotify employee who regularly works out of the downtown office, adding that employees who come in get motivated and build community by collaborating on an office playlist.