Since last fall, it’s been a layoff bloodbath in the tech industry.
Google parent company Alphabet cut 12,000 employees, just topping Microsoft’s announced layoffs of 11,000. Salesforce has plans to slash 9,000 employees, while Meta is parting with 11,000. Amazon, meanwhile, is cutting 18,000 people nationwide. Joi
The bruising round of cutbacks, fueled by fears of a recession, may have a big impact on cities with a big footprint like San Francisco, New York, and Seattle, according to observers, where corporate office workers form an important part of the downtown economy.
“This downturn in tech is going to be devastating for Washington, and the long-term effects will be quite profound,” Jeff Shulman, a marketing professor at the University of Washington, told Bloomberg of the ripple effects from cuts at Microsoft and Amazon, which both have large employee bases in the state. “Tech companies have fueled so much growth and change that when they tap on the brakes and go in reverse, it puts everything else in peril.”
The cost-cutting at some companies like Salesforce and Meta includes explicit plans to cut down on high-cost real estate, with the latter giving up a recently built Manhattan extension.
In 2022, rental demand was far below historical averages, with San Francisco’s office vacancy rate at more than 27 per cent, up from 3.7 before the pandemic, and New York just .4 per cent off the all-time, pandemic-era vacancy record of 19.6 per cent, according to a report from CBRE Group.
In addition to cutting down demand for office space, some worry the layoffs will slow housing demand overall.
“If people fear being laid off, they will almost certainly put off new, huge financial purchases — and buying a home is typically the biggest financial transaction of most people’s lives,” Compass Chief Market Analyst Patrick Carlisle told The Real Deal.
However, some caution that even in places like the Bay Area, an economic apocalypse isn’t inevitable just because of tech layoffs.
“So far, the job growth is positive and the unemployment rates are really very low, although that could change in the near term,” Stephen Levy, director and senior economist for the Center for Continuing Study of the California Economy, told the San Francisco Chronicle.
Mr Levy also pointed out that some of the tech layoffs are a result of companies shedding extra staff they took on during a pandemic-era boom, such as Salesforce, which nearly doubled its workforce as companies sought new software solutions.
“So if they cut 10,000 they will still be 21,000 over pre-pandemic levels,” the economist added.
Still, it could be tough times ahead for landlords, from residential to corporate ones.
“It’s an extremely difficult time to be a landlord,” Ruth Colp-Haber, chief executive officer of brokerage firm Wharton Property Advisors, told Bloomberg. “All the costs of running their buildings are increasing, the cost of construction and labor is increasing. That’s all of their daily costs just to open their buildings up for business. Then, on the income side, rents will fall. It’s a real witch’s brew.”
And in 2023, tech layoffs have already surpassed their 2022 pace, SFGate reports.