For much of the past two decades, including during the pandemic, tech companies have been a bright spot in New York’s economy. They provided thousands of well-paid jobs and grew into millions of square feet of office space.
Their growth generated tax revenue, made New York a credible rival to the San Francisco Bay Area — and created jobs that helped the city absorb layoffs in other industries during the pandemic and financial crisis of 2008.
Now the technology industry is retreating sharply, clouding the city’s economic future.
Due to many business challenges, major tech companies have laid off more than 386,000 workers across the country since early 2022, according to layoffs.fyi, which tracks the tech industry. And they have pulled out of millions of square feet of office space because of job losses and the shift to working from home.
Those cuts have hurt many tech hubs, and San Francisco has been hit the hardest with an office vacancy rate of 25.6 percent, according to Newmark Research.
New York is outperforming San Francisco — Manhattan has a vacancy rate of 13.5 percent — but can no longer rely on the tech industry for growth. According to Newmark, more than one-third of the approximately 22 million square feet of office space available for sublease in Manhattan comes from technology, advertising and media companies.
Take Meta, which owns Facebook and Instagram. It is now offloading much of the more than 2.2 million square feet of office space it has gobbled up in Manhattan in recent years after laying off about 1,700 employees this year, or a quarter of the New York state workforce. The company has elected not to renew leases for 250,000 square feet in Hudson Yards and for 200,000 square feet on Park Avenue South.
Spotify is seeking to sublet five of the 16 floors it rented six years ago at 4 World Trade Center, and Roku is offering a quarter of the 240,000 square feet it occupied in Times Square last year. Twitter, Microsoft and other tech companies are also trying to sublease unwanted space.
“The technology companies have been such a big part of the real estate landscape over the past five years,” said Ruth Colp-Haber, the CEO of Wharton Property Advisors, a real estate brokerage. “And now that they appear to be cutting back, the question is, who is going to replace them?”
Ms Colp-Haber said it could take months for larger spaces or entire floors of buildings to be sublet. The large amount of space available for subletting also means that the rents that landlords can get for new leases are going down.
“They’re going to undercut every landlord on price, and they have really nice spaces that have all been built out already,” she said, referring to the tech companies.
The technology sector has been a driving force behind New York’s economy since the rise of dotcom in the late 1990s helped establish “Silicon Alley” south of Midtown. Then, after the financial crisis, the expansion of companies like Google supported the economy as banks, insurance companies and other financial firms pulled out.
Small and large tech companies have added 43,430 jobs in New York in the five years to the end of 2021, a 33 percent gain, according to the state comptroller. And those jobs paid really well: The average tech salary in 2021 was $228,620, nearly double the average private sector salary in the city, according to the comptroller.
Job growth fueled demand for commercial space, and technology, advertising and media companies accounted for nearly a quarter of new office leases signed in Manhattan in recent years, according to Newmark.
Microsoft and Spotify declined to comment on their decision to sublet space. Twitter and Roku did not respond to requests for comment. Meta said in a statement that it was “committed to distributed work” and was “constantly refining” its approach.
A few big tech companies are still expanding in New York.
Google plans to open St. John’s Terminal, a large office near the Hudson River in lower Manhattan, early next year. Including the terminal, according to a company representative, Google will own or lease about seven million square feet of office space in New York, up from about six million today. (Google leases more than a million square feet of that space to other tenants.) The company has more than 12,000 employees in the New York area, up from more than 10,000 in 2019.
Amazon, which canceled plans to build a large campus in Queens in 2019 after local politicians objected to the incentives offered to the company, nevertheless added 200,000 square feet of office space in New York, Jersey City and Newark since 2019. The company will have added about 550,000 square feet of office space later this summer, when it opens 424 Fifth Avenue, the former Lord & Taylor department store, which it bought in 2020 for $10.15 billion.
“New York offers a fantastic, diverse talent pool, and we are proud of the thousands of jobs we’ve created across the city and state over the past 10 years in both our corporate and operational roles,” Holly Sullivan, vice president of global economic development at Amazon, said in a statement.
And while many tech companies are letting employees work from home for much of the week, they’re also trying to get employees back to the office, which could help reduce the need to sublease space.
Salesforce, a software company with offices in a tower next to Bryant Park, said it is not considering subletting its New York space.
“Right now I’m dealing with the opposite problem in the New York tower,” said Relina Bulchandani, head of real estate at Salesforce. “There has been a concerted effort to continue to grow the right roles in New York because we have a very large customer base in New York.”
New York has been and will continue to be a vibrant home for tech companies, industry representatives said.
“I haven’t heard of a tech company leaving yet, and that matters,” said Julie Samuels, the president of TECH:NYC, an industry association. “In any case, we see less contraction under tech leases in New York than in other major cities.”
Fred Wilson, a partner at Union Square Ventures, said tech executives now felt less of a need to be in Silicon Valley, a shift he said had benefited New York. “We have more company CEOs and more company founders in New York today than we did before the pandemic,” said Wilson, referring to the companies his firm has invested in.
David Falk, the president of the New York tristate region for Newmark, said, “We are currently working on several transactions with smaller, fledgling technology companies that want to sublease space.”
However, many companies are still pulling out.
In 2017 and 2019, Stockholm-based Spotify signed leases totaling over 564,000 square feet of space in 4 World Trade Center, becoming one of the largest tenants there. It soon had a space with all the gear you’d expect from a tech company: brightly colored flexible workspaces, dazzling views, and ping pong tables.
But in January, Spotify said it was laying off 600 people, or about 6 percent of its global workforce. The company, which offers employees the option to choose between working completely remotely or on a hybrid schedule, is also reducing its office space and making five floors available for subletting.
“On days when I’m alone, I sit in a conference room all day to concentrate,” says Dayna Tran, a Spotify employee who works regularly at the downtown office.