Over the past two decades, even during the pandemic, technology companies were a bright spot in New York’s economy, adding thousands of high-paying jobs and expanding into millions of square feet of office space.
Their growth boosted tax revenue, established New York as a credible rival to the San Francisco Bay Area – and provided jobs. which helped absorb the city Layoffs in other areas during the pandemic and the 2008 financial crisis.
Now, the technology industry is desperately stepping back, leaving the city’s economic future bleak.
Facing several business challenges, large technology companies have laid off over 386,000 employees across the country since the beginning of 2022. layoff.fyi, which tracks the tech industry. And they have removed millions of square feet of office space because of job cuts and the shift to working from home.
That layoff has hurt many tech hubs, and San Francisco has been hit the most, 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 rely on the technology industry for growth. According to Newmark, more than a third of the nearly 22 million square feet of office space available for sublet in Manhattan comes from technology, advertising and media companies.
Consider Meta, which owns Facebook and Instagram. Now it’s unleashing a whopping over 2.2 million sq ft office space It went bankrupt 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 has opted not to renew leases for 250,000 square feet at Hudson Yards and 200,000 square feet at Park Avenue South.
Spotify is trying to rent five of the 16 floors it leased six years ago at 4 World Trade Center, and Roku is offering a quarter of the 240,000 square feet it took last year in Times Square. Twitter, Microsoft and other technology companies are also trying to sub-lease unwanted space.
“Tech companies were such a huge part of the real estate landscape during the past five years,” said Ruth Kolp-Haber, chief executive of real estate brokerage firm Wharton Property Advisors. “And now that they’re making the cut, the question is, who will replace them?”
Ms. Kolp-Haber said it could take several months to rent out large spaces or entire floors of buildings. The large amount of space available for sub-rent is also reducing the rents that landlords are able to receive on new leases.
“They’re going to undercut every landlord in terms of pricing, and they have really nice places that are already built,” he said, referring to tech companies.
The tech sector has been a driver of New York’s economy since helping set off the dot-com boom of the late 90s.silicon alley“South of Midtown. Then, after the financial crisis, as banks, insurers and other financial companies pulled back, the expansion of companies like Google supported the economy.
small and large tech companies couple New York could create 43,430 jobs in the five years to the end of 2021, a gain of 33 percent, according to the state comptroller. And those jobs paid very well: According to the comptroller, the average tech salary in 2021 was $228,620, nearly double the average private sector salary in the city.
The increase in jobs fueled demand for commercial space, and tech, advertising and media companies accounted for nearly a quarter of new office leases signed in Manhattan in recent years, according to Newmark.
Microsoft and Spotify declined to comment about their decision to sub-rent the space. Twitter and Roku did not respond to requests for comment. Meta said in a statement that it is “committed to distributed ledgers” and is “continually refining” its approach.
Some big tech companies are still expanding in New York.
Google plans to open a larger office, St. John’s Terminal, in Lower Manhattan early next year near the Hudson River. 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 one million square feet of that space to other tenants.) The company has more than 12,000 employees in the New York area, up from 10,000 in 2019.
Amazon, which in 2019 canceled plans The company has added 200,000 square feet of office space since 2019 in New York, Jersey City and Newark, building a larger campus in Queens after local politicians objected to incentives offered to the company. The company will add about 550,000 square feet of office space later this summer when it opens 424 Fifth Avenue, the former Lord & Taylor department store it bought in 2020 for $1.15 billion.
“New York offers a fantastic, diverse talent pool, and we are proud of the thousands of jobs created over the past 10 years across both our corporate and operational operations in the city and state,” Holly Sullivan, vice president of worldwide economic development at Amazon, said in a statement.
And although many tech companies continue to allow employees to work from home for most of the week, they are also trying to bring employees back into the office, which could help reduce the need to rent space.
Salesforce, a software company whose offices are in a tower next to Bryant Park, said it is not considering sub-leasing its New York location.
“I’m currently facing the opposite problem in a tower in New York,” said Relina Bulchandani, Salesforce’s head of real estate. “There has been a concerted effort to grow the right roles in New York as we have a large client base in New York.”
Industry representatives said New York is and will continue to be a vibrant home for technology companies.
“I haven’t heard of any tech company leaving, and that matters,” said Julie Samuels, president of TECH:NYC, an industry association. “If anything, we’re seeing less contraction among tech leases in New York than in other large cities.”
Tech executives now feel less need to live in Silicon Valley, said Fred Wilson, partner at Union Square Ventures, adding that New York has benefited from this change. “We have more company CEOs and more company founders in New York today than we did before the pandemic,” Mr. Wilson said, referring to those companies.
“We’re working on a number of transactions right now with smaller, younger tech companies that are looking to take up the sublet space,” said David Falk, president of the New York tristate region for Newmark.
However, many companies are still retracing their steps.
In 2017 and 2019, Spotify, which is based in Stockholm, signed leases totaling more than 564,000 square feet of space at 4 World Trade Center, becoming one of the largest tenants there. It soon had a space with all the furnishings you’d expect at a tech firm – brightly colored 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, creating five floors for sublet.
“On the days when I’m alone, I sit in meeting rooms all day for focus time,” said Dayna Tran, a Spotify employee who works regularly in the downtown office. The employees who come inspire themselves and create community by collaborating on an office playlist, she said.