Photographer: David Paul Morris/Bloomberg
Large tech companies, including Lyft, Meta, Salesforce and others, are downscaling their real estate holdings in response to market conditions. They are stalling construction, attempting to extricate themselves from exorbitant leases or trying to sublet space and unloading millions of square feet of office space in prime locations, including San Francisco, Silicon Valley, New York, Austin and other locations, the Wall Street Journal reported on Tuesday.
The new austere economy, caused by 40-year, record-high inflation rates and the Federal Reserve Bank aggressively hiking interest rates, has negatively impacted the bottom line for businesses.
Companies are cutting costs to reign in expenses. Unfortunately, one of the most substantial expenses is the high compensation paid to skilled, white-collar tech professionals, such as software engineers. With fewer workers, due to hiring freezes and the downsizing of human resources and recruiting professionals, there is less need for corporate leases in expensive cities and purchases made by tech companies over the pandemic.
One year ago at this time, there was a war for talent. Now, more than 120,000 tech workers have been laid off, according to Layoffs.fyi. The beneficiaries of this move will be the people who want to work remotely, or on a hybrid basis for one or two days a week.
This new trend will gain momentum as tech and other companies scramble to tighten their budget and save money. The pandemic accelerated the move to conduct business online. The share prices of tech stocks skyrocketed. The “everything bubble” burst, and it's been a brutal year for Silicon Valley.
Those Who Want To Work At Home Will Be Happy
In hindsight, the tech giants and venture capital-backed startups were too enthusiastic in their belief that the migration to a digital economy would last forever. The companies aggressively hired to win the battle for talent. As the economy contracts and the tech sector continues to lose its luster, the bets made by tech leadership to invest in real estate space were a mistake.
The winners will be those who want to work remotely. While many companies, such as Apple and Wall Street investment banks, pushed for people to return to the office, there was pushback from workers. They’d point to the fact that working from home was successful over the last two-plus years. People were more productive without commuting to and from the office for two to three hours round trip. They tended to put in more hours during the week, including weekends, as there was little else to do.
Money will be saved as companies let go of their office leases and employees work out of their homes or from wherever they desire. With inflation raging, remote workers will save on money by not having to purchase expensive bus or train tickets, or spend a small fortune on gas and the wear and tear of their vehicles to commute from the suburbs to New York or other major cities. With fewer people commuting long distances, it will help improve the environment. There won’t be a need to purchase new office attire and spend an exorbitant amount on breakfast and lunch in high-cost cities.
Working from home offers a better work-life balance. You won’t miss your children's sports games, recitals and other special school events. There will be time to take care of elderly parents and no need to pay the exorbitant cost of child care.
The Stock Price Plunges And Layoffs Show Tech’s Pain
Salesforce confirmed last week that it has laid off under 1,000 of its workers. Up to 2,500 employees could eventually be affected by the job cuts, according to Protocol. Meta CEO Mark Zuckerberg laid off 11,000 people, representing around 13% of his workforce. Elon Musk summarily dispatched thousands of Twitter employees. Stripe, Snap, Apple, Microsoft, Intel, Lyft, Opendoor and an array of other tech companies have recently enacted layoffs or hiring freezes.
Apple’s share price dropped about 16%. This plunge represents one of the best-performing stocks. Meta, Amazon, Netflix and Alphabet performed worse, with Meta imploding around 66% this year. Microsoft, Nvidia and Tesla plunged between 25% and 45%. The Nasdaq composite, which is an index with a large representation of tech companies, fell about 30%, CNBC reported. As interest rates rise to combat inflation, tech and other sectors are in for a long, painful slog.
