Tech companies are ending leases and consolidating offices as remote work is here to stay

On a Saturday in April, several executives from SoundCommerce rented a U-Haul, drove it to their office in Seattle and loaded up the truck with stand-up desks, 48-inch monitors and various other gadgets and personal belongings. For two days, they traversed town, dropping the items off at employees’ houses and apartments.

With the coronavirus forcing non-essential employees to shelter in place, it had been weeks since any the start-up’s 20 or so staffers had worked at the office. It was clear they wouldn’t be going back.

The lease expires July 31, and SoundCommerce CEO Eric Best said the company did not extend its contract.

“We polled the team and, for the vast majority, they prefer to remain at home,” said Best, who co-founded the software company in 2018. “We’re not making any decision for the long term right now. We’re thinking about what do we do for the next six to 12 months in terms of maximum safety of team and maximum flexibility of the company.”

In the tech hubs of Seattle, Silicon Valley, New York and elsewhere, many CEOs are coming to the same conclusion real estate is not a worthwhile expense. Start-ups that never intended to be fully distributed are letting leases end or looking for ways to get out of longer deals, while bigger employers are closing facilities, consolidating space and exploring ways to provide workers with flexible arrangements and options closer to home to avoid long commutes.

In May, CBRE was predicting about a 7% drop in office rents per square foot from the first quarter to the fourth quarter. It expected vacancy rates to rise as high as 14.9% in the first quarter of 2021, up from 12.3% in first three months of 2020. Since then, the number of Covid-19 infections in the U.S. has skyrocketed, and states including Florida and Texas continue to see daily record highs.

Facebook, Twitter, Okta and Box are among the tech companies that have announced a more permanent shift to a hybrid approach. Many others are likely to follow as extended school closures or shortened days make remote options essential. Officials in Los Angeles and San Diego announced on Monday that schools will start online-only in the fall.

With that ominous backdrop and no vaccine expected anytime soon, office workers who can be productive at home are showing little desire to leave, and in many parts of the country they don’t even have the option. 

At SoundCommerce, the office cost was equivalent to the salary for one to two full-time employees, Best said. His company, whose software provides real-time data to online retailers, raised a $6.5 million seed round about a year ago, and now has more options with how to spend its money.

“We could forego the space and either buy additional cash runway, which is important for a start-up,” Best said. “Or hire additional engineering capacity, which is even more important for a start-up.”

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