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Tech Firms Once Powered New York’s Economy. Now They’re Scaling Back

NEW YORK — For much of the last two decades, including 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 buoyed tax revenue, set up New York as a credible rival to the San Francisco Bay Area and provided jobs that helped the city absorb layoffs in other sectors during the pandemic and the 2008 financial crisis.

Now, the technology industry is pulling back hard, clouding the city’s economic future.

Facing many business challenges, large technology companies have laid off more than 386,000 workers worldwide since early 2022, according to the website layoffs.fyi, which tracks the tech industry. And they have pulled out of millions of square feet of office space because of those job cuts and the shift to working from home.

That retrenchment has hurt lots of tech hubs, and San Francisco has been hit the hardest with an office vacancy rate of 25.6%, according to Newmark Research.

New York is doing better than San Francisco — Manhattan has a vacancy rate of 13.5% — but it can no longer count on the technology industry for growth. More than one-third of the roughly 22 million square feet of office space available for sublet in Manhattan comes from technology, advertising and media companies, according to Newmark.

Consider Meta, which owns Facebook and Instagram. It is now unloading a big chunk of the more than 2.2 million square feet of office space it gobbled up in Manhattan in recent years after laying off around 1,700 employees this year, or one-quarter of its New York state workforce. The company has opted not to renew leases covering 250,000 square feet in Hudson Yards and 200,000 square feet on Park Avenue South.

Spotify is trying to sublet five of the 16 floors it leased six years ago in 4 World Trade Center, and Roku is offering one-quarter of the 240,000 square feet it had taken in Times Square just last year. X (formerly known as Twitter), Microsoft and other technology companies are also trying to sublease unwanted space.

Spotify is trying to sublet five of the 14 floors it leased six years ago in 4 World Trade Center. (George Etheredge / The New York Times)
Spotify is trying to sublet five of the 14 floors it leased six years ago in 4 World Trade Center. (George Etheredge / The New York Times)

“The tech companies were such a big part of the real estate landscape during the last five years,” said Ruth Colp-Haber, CEO of Wharton Property Advisors, a real estate brokerage. “And now that they seem to be cutting back, the question is: Who is going to replace them?”

Colp-Haber said it could take months for bigger spaces or entire floors of buildings to be sublet. The large amount of space available for sublet is also driving down the rents that landlords are able to get on new leases.

“They are going to undercut every landlord out there in terms of pricing, and they have really nice spaces that are already all built out,” she said, referring to the tech companies.

The tech sector has been a driver of New York’s economy since the late ’90s dot-com boom helped to establish “Silicon Alley” south of midtown Manhattan. Then, after the financial crisis, the expansion of companies like Google supported the economy when banks, insurers and other financial firms were in retreat.

Small and large tech companies added 43,430 jobs in New York in the five years through the end of 2021, a 33% gain, according to the state comptroller. And those jobs paid very well: The average tech salary in 2021 was $228,620, nearly double the average private-sector salary in the city, according to the comptroller.

The growth in jobs fueled demand for commercial space, and tech, advertising and media companies accounted for nearly one-quarter of the new office leases signed in Manhattan in recent years, according to Newmark.

Redmond-based Microsoft and Spotify declined to comment about their decision to sublet space. X and Roku did not respond to requests for comment. Meta said in a statement that it was “committed to distributed work” and was “continuously refining” its approach.

A few Big Tech companies are still expanding in New York.

St. John’s Terminal, right, which Google plans to open in 2024 as a new campus, in New York, Aug. 31, 2022. After years of steady growth, many technology companies are laying off workers and giving up millions of square feet of office space in New York. (Tony Cenicola / The New York Times)
St. John’s Terminal, right, which Google plans to open in 2024 as a new campus, in New York, Aug. 31, 2022. After years of steady growth, many technology companies are laying off workers and giving up millions… (Tony Cenicola / The New York Times)More 

Google plans to open St. John’s Terminal, a large office near the Hudson River in lower Manhattan, early next year. Including the terminal, Google will own or lease around 7 million square feet of office space in New York, up from roughly 6 million today, according to a company representative. (Google leases more than 1 million square feet of that space to other tenants.) The company has more than 12,000 employees in the New York area, up from over 10,000 in 2019.

Seattle-based Amazon, which in 2019 canceled plans to build a large campus in Queens after local politicians objected to the incentives offered to the company, has nevertheless added 200,000 square feet of office space in New York and Jersey City and Newark in New Jersey since 2019. The company will add roughly 550,000 square feet of office space later this summer when it opens 424 Fifth Ave., the former Lord & Taylor department store, which it bought in 2020 for $1.15 billion.

“New York provides a fantastic, diverse talent pool, and we’re proud of the thousands of jobs we’ve created in the city and state over the past 10 years across both our corporate and operations functions,” Holly Sullivan, vice president of worldwide economic development at Amazon, said in a statement.

And though many tech companies continue to let employees work from home for much of the week, they are also trying to woo workers back to the office, which could help reduce the need to sublet space.

Salesforce, a software company that has offices in a tower next to Bryant Park, said it was not considering subletting its New York space.

“Currently I’m facing the opposite problem in the tower in New York,” said Relina Bulchandani, head of real estate for Salesforce. “There has been a concerted effort to continue to grow the right roles in New York because we have a very high customer base in New York.”

New York is and will remain a vibrant home for technology companies, industry representatives said.

“I have not heard of a single tech company leaving, and that matters,” said Julie Samuels, president of Tech:NYC, an industry association. “If anything, we are seeing less of a contraction in New York among tech leases than they are seeing in other large cities.”

Fred Wilson, a partner at Union Square Ventures, said tech executives now felt less of a need to be in Silicon Valley, a shift that he said had benefited New York. “We have more company CEOs and more company founders in New York today than we did before the pandemic,” Wilson said, referring to the companies his firm has invested in.

David Falk, president of the New York tri-state region for Newmark, said, “We are right now working on several transactions with smaller, young tech firms that are looking to take sublet space.”

Many firms are still pulling back, however.

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 accouterments you would expect at a tech firm — brightly colored flexible work areas, eye-popping views and table tennis.

But in January, Spotify said it was laying off 600 people, or about 6% of its global workforce. The company, which allows employees to choose between working fully remotely or on a hybrid schedule, is also reducing its office space, putting five floors up for sublet.

“On days when I’m by myself, I end up sitting in a meeting room all day for focus time,” said Dayna Tran, a Spotify employee who regularly works at the downtown office, adding that the employees who come in motivate themselves and create community by collaborating on an office playlist.

Source : TheSeattleTimes