Big tech companies including Lyft, Meta, Salesforce and others are shrinking their real estate holdings in response to market conditions. They are delaying construction, trying to evade exorbitant leases or trying to sublet space and dumping millions of square feet of office space in prime locations including San Francisco, Silicon Valley, New York, Austin and other places, the the wall street journal reported Tuesday.
The austere new economy, caused by 40-year high inflation rates and aggressive interest rate hikes by the Federal Reserve, has had a negative impact on corporate results.
Businesses are cutting costs to control spending. Unfortunately, one of the biggest expenses is the high compensation paid to skilled, white-collar technology professionals, such as software engineers. With fewer workers, due to hiring freezes and reduced human resources and recruitment of professionals, there is less need for corporate leases in expensive cities and purchases made by technology companies during the pandemic .
A year ago at this time, there was a talent war. Now more than 120,000 tech workers have been laid off, according to Layoffs.fyi. The beneficiaries of this move will be people wishing to work remotely, or in hybrid mode one or two days a week.
This new trend will gain momentum as tech companies and others strive to squeeze budgets and save money. The pandemic has accelerated the trend of doing business online. Share prices of tech stocks soared. The “everything bubble” burst, and it was a brutal year for Silicon Valley.
Those who want to work from home will be happy
Looking back, tech giants and venture capitalist-backed startups were overly enthusiastic in their belief that the migration to a digital economy would last forever. Companies have been hiring aggressively to win the battle for talent. As the economy shrinks and the tech sector continues to lose its luster, the bets made by the tech leadership to invest in the real estate space were a mistake.
The winners will be those who want to work remotely. As many companies, such as Apple and Wall Street investment banks, pushed people back to the office, workers responded. They would point to the fact that working from home has been a success for the past two years. People were more productive without commuting from office to office for two to three hours back and forth. They tended to put in more hours during the week, including the weekends, because there wasn’t much else to do.
Money will be saved when companies give up their office leases and employees work from home or wherever they choose. With inflation raging, remote workers will save money by not having to buy expensive bus or train tickets, or spend a small fortune on gas and wear and tear on their vehicles to travel from the suburbs to New York or other major cities. With fewer people commuting long distances, it will help improve the environment. There will be no need to buy a new office outfit and spend an exorbitant amount on breakfast and lunch in high-cost cities.
Working from home offers a better work-life balance. You won’t miss your children’s sports games, recitals and other special school events. There will be time to care for aging parents and no need to pay the exorbitant cost of childcare.
Stock price plunges and layoffs show tech pain
Salesforce confirmed last week that it has laid off less than 1,000 of its employees. Up to 2,500 employees could potentially be affected by the job cuts, according to Protocol. Meta CEO Mark Zuckerberg laid off 11,000 people, or about 13% of its workforce. Elon Musk summarily dispatched thousands of Twitter employees. Stripe, Snap, Apple, Microsoft, Intel, Lyft, Opendoor and an array of other tech companies have recently enacted layoffs or hiring freezes.
Apple’s stock price fell about 16%. This fall represents one of the best performing stocks. Meta, Amazon, Netflix and Alphabet have performed less well, with Meta imploding around 66% this year. Microsoft, Nvidia and Tesla plunged between 25% and 45%. The Nasdaq composite, which is an index with a broad representation of tech companies, fell about 30%, CNBC reported. As interest rates rise to fight inflation, technology and other sectors face a long and painful grind.
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