Tech Office Leasing Dives Off Cliff in Q4, Drops 57%

The tech sector, driver of the US economy for much of the past decade, and—along with life sciences—an oasis fueling growth in an otherwise crippled office sector during the pandemic, is now the poster child for the economic downturn.

As a wave of massive layoffs continues to impact tech companies across the spectrum, tech’s US office footprint—which expanded in leasing velocity as it entered 2022 to more than 8.5M SF—collapsed to barely a quarter of that in Q4.

The swan dive to 2.2M SF in tech office leasing in the fourth quarter was a drop of 57% from the activity in Q3, according to Savills’ Q4 Tech Tenant report.

According to Savills, the precipitous drop in tech leasing activity corresponds directly to a withdrawal of venture capital that began at the peak of tech leasing velocity at the end of last year.

VC funding shrank from more than $90B at the end of 2021 to about $70B in Q1 2022, which resulted in a corresponding drop in leasing activity, which dipped to 4.3M SF in the first quarter. VC funding held steady at the $70B level in Q2 and most of Q3, resulting in a corresponding leveling off of leasing activity, which encompassed about 5.1M SF in Q3, Savills reported.

In the fourth quarter, the barrel went over Niagara Falls: VC funding plunged to about $42B as leasing activity collapsed to 2.2M SF.

The decline in leasing activity also tracks closely—in opposite directions—to the increase in monthly tech layoffs, which began in Q2 2022 with the first wave of about 30K in tech job cuts, leveled off at that plateau until the end of Q3, and then surged to 74K in layoffs in Q4.

It now seems increasingly apparent that a primary reason cited by major tech players in downsizing their office footprints in the first half of 2022—an embrace of remote work—quickly began morphing into an economic necessity as the year progressed.

Meta, which has been opting out of offices leases on both coasts during the past six months in an effort to trim $2B in costs after its stock lost nearly 70% of its value last year, appears to have gotten the dance steps backwards:

The social networking giant now is positioning its latest office footprint reductions to a strategic decision to lead a transition to the remote “office of the future.”

If you buy that, we’ve got a metaverse we want to sell you that will protect the privacy of your personal data even more than Facebook did.