The Patagonia vest recession, a current economic condition that New York University Stern School of Business Professor Scott Galloway aptly named because he’s predicting it will mostly affect employees of big technology companies, seems to be in full swing. Coupled with what may seem like a lasting transformation of how these companies work, the office space in cities where these companies have made big moves in the past will likely become abundant. In the latest iteration of this phenomenon, large technology employers across the Puget Sound region, Amazon, Microsoft and Meta, to name a few, are jettisoning their office space by either not renewing leases or placing large swats of space on the sublease market, and the impact may take years to overcome.
In a report by the Puget Sound Business Journal, Amazon is looking to shed the roughly 370,000 square feet it occupies in the Kilroy Realty-owned 28-story West 8th Tower located at 2001 Eight Ave. in Seattle. Kilroy, which purchased the property in September of 2021 for $490 million, or just under $909 per square foot, from Deutsche Asset Management, counted on Amazon to keep the Denny Regrade property occupied for some time. After all, this is the company’s home, and its headquarters are spread among the buildings in this area.
“We believe the Denny Regrade submarket continues to be extremely well-positioned for strong rental growth over the coming years and West 8th, which offers an unrivaled location, will help deliver solid earnings growth and value creation for our shareholders,” said John Kilroy, chairman and chief executive officer at the time of the acquisition.
The property’s value has only appreciated over time, and the building has traded several times in recent years. Deutsche Asset Management originally acquired the Class A, 516,985-square-foot building in the spring of 2016 for $370 million, or about $740 per square foot. Deutsche purchased the property from AEW Capital Management, who initially acquired the building in 2013 for $278.7 million, according to reporting by The Registry.
The building was originally completed in May 2009 and is within the South Lake Union submarket. It features 497,798 square feet of Class A office space and 18,000 square feet of retail space. Amenities include an outdoor terrace, an onsite childcare facility, a full-service restaurant, and a coffee bar.
In July of last year, Amazon paused all development activity on several projects in Bellevue’s downtown core. Amazon had asked for construction work on three Bellevue projects to be stopped immediately for up to 24 months. Further investigation narrowed that down to Amazon deciding not to develop the second tower of its Bellevue 600 project. In addition, a source shared that Amazon is also stopping work on half of the tenant improvement work in Vulcan’s 42-story 967,500 Square foot high-rise office project Tower 555 located at 555 108th in Bellevue. According to additional reporting by local media, Amazon is looking to pause work on as many as six towers totaling over 3 million square feet.
Amazon’s transition comes at a time when large technology companies are experiencing financial difficulty and have had to lay off thousands of employees in recent months. Amazon announced it would be letting go of 18,000 employees. Microsoft plans to fire 10,000 workers, while Meta has also announced a reduction in force of 11,000 employees.
The timing of these cuts coincides with what has become an inevitable transformation of how work at these companies is conducted. Amazon stated in the article that change is a result of the new way its employees work. Meta, in a statement to The Registry also confirmed a similar sentiment. “The future of work is here, and we’re embracing it at Meta. The past few years have brought new possibilities around the role of the office, and we are prioritizing making focused, balanced investments to support our most strategic long-term priorities and lead the way in creating the workplace of the future. Our aim is to build a best-in-class remote work experience to help everyone do the best work of their careers no matter where they are,” said a Meta spokesperson
Both Microsoft and Meta are reducing their footprints across the region. According to published reports, Microsoft will let go of approximately 1.7 million square feet, and Meta is going to sublease the offices it occupies at Arbor Block 333, also located on Eight Ave. in Seattle. At the same time, the company announced that it was reviewing leases across the Puget Sound region and announced that it would not occupy the Block 6 building that it pre-leased in Bellevue’s Spring District.
The move follows months of announcements from firms across the technology industry looking for ways to reduce their office footprint. Companies like Twitter, Okta, Airbnb, Lyft, Slack, Zynga, Netflix and others have been slowly placing office space on the sublease market in the cities where they have experienced exponential growth over the last decade.
The pronouncements about where the industry sees corporate office space in the future have been squarely focused on reduction.
“When I see headlines about CEOs trying to lure employees back to the office, I feel like it’s probably a doomed approach,” explained Slack CEO and Co-Founder Stewart Butterfield to The Washington Post in December of 2021. “Work is no longer a place you go. It’s something you do.”
According to a recent Kidder Mathews Seattle Office Market Report from the 4th Quarter 2022, the office market has now seen a rise in vacancy for 10 of the last 12 quarters with a 473 basis point upward swing in office vacancy from the 2nd quarter 2019 to the 4th quarter 2022 vacancy mark. One reason for the surging vacancy is the regional office market continues to post negative net office absorption figures. The regional office market remains unsettled and highly volatile, particularly in Seattle, states Kidder Mathews’ report. Looking forward, the brokerage firm sees office demand remaining in question as vacancy continues to rise and net absorption remains negative.