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Wednesday, 02/10/2021 11:27:17 AM

Wednesday, February 10, 2021 11:27:17 AM

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Salesforce, San Francisco’s Largest Employer, Switches to Hybrid “Work from Anywhere,” Won’t Need All that Space in Salesforce Tower. Uber, Old Navy, Yelp, Oracle, Dropbox… Dump Office Space
By: Wolf Richter | February 9, 2021

This is just so relentless: “We’re not going back to the way things were.”

This is just so relentless. Salesforce, the largest employer in San Francisco, and an anchor tenant in the 1.4 million square-foot Salesforce Tower, the tallest building west of the Mississippi – owned by Boston Properties, the largest office landlord in San Francisco – announced today in a blogpost, that it would switch to a hybrid “work-from-anywhere” model going forward.

“We’re not going back to the way things were,” president and chief people officer Brent Hyder told the Wall Street Journal. “I don’t believe that we’ll keep every space in every city that we’re in, including San Francisco.”

In the blogpost, he wrote: “An immersive workspace is no longer limited to a desk in our Towers; the 9-to-5 workday is dead; and the employee experience is about more than ping-pong tables and snacks.”

After the Pandemic, employees would fall into three categories. About 65% of the workforce would be “flex”; they’ll be “in the office 1-3 days per week for team collaboration, customer meetings, and presentations.” The rest of the time, they’d work from home. Another group would be “fully remote,” working from anywhere. And the “smallest population of our workforce” would be “office based,” and work 4-5 days per week in an office location “if they’re in roles that require it.”

A lot less office space would be needed to accommodate these people. The layout of the offices that remain will be changed dramatically into “community hubs to accommodate a more hybrid workstyle. Gone are the days of a sea of desks,” Hyder wrote. He already moved out of San Francisco to Southern California last year.

So this was the latest announcement to knock the wind out of the San Francisco office market, and more broadly, out of San Francisco’s economy.

Vacant space on the market has already exploded to an all-time high, blowing by the prior records set during the Financial Crisis and the Dotcom Bust, to 13.9 million square feet, according to Cushman & Wakefield. Sublease space – companies putting their now unneeded office space on the market – accounted for over half of the total vacant office space and has become a pandemic in its own right.

Also today, there’s Uber. The San Francisco Business Times reported, based on two sources familiar with the offering, that Uber has been “softly” marketing up to 300,000 square feet of its new 1 million square foot campus in San Francisco’s Mission Bay. The space has not been officially listed yet.

Yesterday, Old Navy, whose brands account for over half of Gap’s total revenues, announced in an email, reported by the San Francisco Chronicle, that it would shut down its Mission Bay headquarters and move into Gap’s headquarters, spread over two company-owned buildings by the Embarcadero in San Francisco. Gap had planned to spin off Old Navy but scuttled that plan in January last year.

Last week, Yelp said, “With more employees working remotely we’re reducing some of our footprint in San Francisco, but we will still maintain our HQ office there,” after it came out that it has apparently not renewed the lease for its headquarters, 161,900 square feet, covering 14 of the 26 floors at the iconic Art Deco office tower at 140 New Montgomery St. The lease for 13 of the floors expires in October. The lease for the 14th floor expires in May next year. The entire office space has been listed as available, the San Francisco Business Times reported.

A Yelp spokesperson told the Business Times that the company would operate with “a significant portion of our team working remotely on a full-time basis, or for part of the week.”

“This enables us to reduce our real estate footprint and expand our presence in lower cost markets across the United States, Canada and Europe,” the spokesperson said. “We plan to continue to maintain our presence in the locations where we currently have offices, including our headquarters in San Francisco.” So its headquarters, whatever will be left over, will still be in San Francisco.

In January, Oracle put four of the five floors it leases in the 21-story tower at 475 Sansome Street in San Francisco on the sublease market. In December it had announced that it would move its headquarters from Redwood City in Silicon Valley to its campus in Austin, Texas. And it put its 17-story office tower in San Jose up for sale.

In January, Dropbox cut 11% of its workforce, citing the shift to work from anywhere. While it would maintain its headquarters in San Francisco, it put about 472,000 square feet of its new 750,000-square-foot Mission Bay headquarters building on the sublease market in November. Cofounder and CEO Drew Houston purchased a home in Austin, TX, for his full-time residence.

On January 1, Charles Schwab moved its headquarters from San Francisco to its campus in Westlake, a suburb north of Dallas. The shift was announced in late 2019, but the company has been trimming its workforce in San Francisco for years, and continues to trim it.

Twitter has put 104,850 square feet of office space that is attached to its headquarters building on the sublease market last September. Glassdoor put about half of its just leased headquarters of 117,000 square feet on the sublease market. In August, Pinterest paid $89.5 million to abandon a lease for 490,000 square feet of office space that hasn’t been built yet.

Macy’s shut down its entire tech center in San Francisco – the headquarters of macys.com, Product and Digital Revenue, and Technology – and transferred the activities to existing offices in Atlanta and New York City. This was announced just before the Pandemic in early February 2020. The 1,080 employees and contract workers were laid off.

These are just some of the biggest names that are engaging in massive footprint reductions in San Francisco, or have moved their headquarters to other places entirely. Nearly every day, more names are added to the list, many of them smaller companies.

So when all this office space gets dumped on the sublease market, the question arises: lease to who? There will be some churn, with companies upgrading to nicer digs for less money, which pushes the vacancies down the scale.

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