Whether it’s because of the new remote-work culture shift or weak balance sheets, more and more media and tech companies are putting their physical office leases on the market these days.
Because market conditions were great as the pandemic began to fade, it didn’t matter that companies were paying rent on unused office space. But when 2022 rolled around, the economy took a sharp turn for the worse.
Media and tech giants were thrown for a loop. By the second half of 2022, companies began laying off employees to reduce headcount. To cut costs and bolster balance sheets in preparation for a looming recession, subleasing office spaces became increasingly common.
That made sense because rental agreements are a line item companies can easily reduce in a pinch. On average, rental agreements can account for roughly 5% of total operating budgets. Reducing real-estate footprint is also a much more welcome cost-cutting measure than layoffs.
But sometimes things get so tough that both are necessary, much like it was for Meta. Following the company's Q3 2022 results, Meta management said it would be significantly slowing down hiring and spending around $2 billion in office space consolidation globally. In Q4, Meta said it planned to spend $900 million on that effort.
“We have increased scrutiny on all areas of operating expenses,” Meta CFO Dave Wehner said in the Oct. 26 earnings call. “Some steps, like the ongoing rationalization of our office footprint, will lead to incremental costs in the near term.”
Streaming giant Netflix had to do the same, both laying off hundreds of employees and shedding real estate in Northern and Southern California. The company is coming off a tough year, and investors will be closely monitoring its Q4 2022 financial result next week.
Meanwhile, Lionsgate signed a two-year extension for its headquarters in Santa Monica in April before putting some of that office up for sublease in September. The move illustrated how quickly conditions worsened and how quickly companies are willing to reverse course if necessary.
On the flipside, not all companies shed real estate during the year. Some, like TikTok parent company ByteDance, took on brand-new leases, as it expanded their footprint in the U.S. In February, ByteDance leased a space in Austin, TX, and in September, it subleased office space in San Jose, CA. The Chinese-based tech company is also in talks to expand its presence in the U.K. with an additional office in London. That deal has yet to be finalized.
Nevertheless, ByteDance isn’t without problems this year, too. Lawmakers are looking to take regulatory action against TikTok in the U.S., with some states banning the app on government-issued devices already.
Then there’s iPhone maker Apple, which expanded in Sunnyvale and San Diego, CA, in June of this year. The company faced some serious supply chain woes at the end of 2022, so even as it was able to expand a bit, things might shake out a bit differently in 2023.
Streaming player Roku had a bit of unfortunate timing with real estate in 2022. It signed a brand-new lease in a New York City hotspot in January, right before the downturn accelerated. According to reports, Roku agreed to pay RXR Realty $90 per square foot to take over 240,000 square feet of prime top-floor office space at 5 Times Square. With Roku shares down nearly 75% over the past 12 months, it’s hard to imagine a scenario in which it doesn’t opt out of its lease at some point in the somewhat near term.
But all this is just the beginning. Given the uncertain macroeconomic picture, it is very likely that we’ll be hearing of much more real-estate cost-cutting from media and tech companies as a means to strengthen their war chests.