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Meta Plans $2B in Charges to Get Out of Leases in 2023, Already Spent $1.3B in Second Half of 2022

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Photo by Dima Solomin on Unsplash

By Vladimir Bosanac

The economic realities are hitting one of the world’s largest technology firms. In its third-quarter earnings call earlier this week, Meta announced that on top of a considerable slowdown in hiring, the firm is also expected to spend around $2 billion, or roughly 2 percent of its entire expenses in 2023, in order to consolidate its office facilities across the globe. While the specifics of this were not immediately available, implications are big for the commercial real estate industry still reeling from the consequences of office under-utilization since the start of the global COVID-19 pandemic.

The charges related to its reduction in office footprint are certainly big, however, the firm also announced that just in the fourth quarter of this year, it plans to spend an estimated $900 million in order to streamline its office leases across the globe. In the third quarter, the company had already spent $413 million on the same effort, signaling that this will remain a major focus of cost-cutting initiatives for the enterprise in the foreseeable future.

“We have increased scrutiny on all areas of operating expenses. However, these moves follow a substantial investment cycle so they will take time to play out in terms of our overall expense trajectory,” said Dave Wehner, Meta’s chief financial officer during the earnings call. “Some steps, like the ongoing rationalization of our office footprint, will lead to incremental costs in the near term. This should set us up well for future years, when we expect to return to higher rates of revenue growth.”

The move follows months of announcements from firms across the technology industry looking for ways to reduce their office footprint. Companies like Okta, Airbnb, Lyft, Slack, Zynga, Netflix and others have been slowly placing office space on the sublease market. Meta’s approach to paying penalties to get out of their commitments is aimed at reducing any future liabilities at a time when the firm can probably afford this type of expense.

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.”

One of venture capital’s stalwarts, Andreessen Horowitz, announced earlier this year that it does not plan to hold a physical headquarters location going forward. The firm is instead opting for headquarters in the cloud and an assembly of offices where the firm will be able to gather anywhere in the world very quickly.

“It turns out that running a technology company remotely works pretty darned well,” Ben Horowitz stated in his blog post at the time the announcement was made. “It’s not perfect, but mitigating the cultural issues associated with remote work turns out to be easier than mitigating the employee satisfaction issues associated with forcing everyone into the office 5 days/week.”

Horowitz concludes that this could be a good thing for the country and the world mainly because it allows world-class talent to assemble from anywhere around the globe. Also, it does not cut off opportunities for people to contribute who are not physically located where their colleagues are.

“Remote work is opening up many new locations for entrepreneurs and technology workers. We embrace that by changing our own operating model,” Horowitz added, stating that the firm will now be virtual, but it can materialize physically on demand very quickly. To that end, the firm is adding three locations to its offices in Menlo Park and San Francisco. Andreessen Horowitz will now also have a presence in Miami Beach, New York and Santa Monica, and it will continue to create physical offices around the world where it can support its teams and partners.