For much of the past two decades, including during the pandemic, tech companies have been a bright spot in New York’s economy, adding thousands of high-paying jobs and expanding into millions of square feet of office space.
Their growth boosted tax revenue, established New York as a credible rival to the San Francisco Bay Area—and secured jobs. which helped the city absorb layoffs in other sectors during the 2008 pandemic and financial crisis.
Now the tech industry is pulling back hard, clouding the city’s economic future.
Big tech companies facing multiple business challenges have laid off more than 386,000 workers across the country since the start of 2022, reports layoffs.fyi, which tracks the tech industry. And they pulled out millions of square feet of office space because of the job cuts and the shift to telecommuting.
The cut has hurt many tech hubs, with San Francisco the hardest hit, with an office vacancy rate of 25.6 percent, according to Newmark Research.
New York is doing better than San Francisco—Manhattan has a vacancy rate of 13.5 percent—but it can no longer count on the growth of the tech industry. More than one-third of the roughly 22 million square feet of office space available for sublease in Manhattan comes from technology, advertising and media companies, according to Newmark.
Consider Meta, the company that owns Facebook and Instagram. It is now unloading a large chunk of more than 2.2 million square feet Office space in recent years in Manhattan after laying off about 1,700 employees this year, or a quarter of its New York state workforce. The company decided not to renew leases covering 250,000 square feet at Hudson Yards and 200,000 square feet at Park Avenue South.
Spotify is looking to lease five of the 16 floors it leased six years ago at 4 World Trade Center, and Roku is offering a quarter of the 240,000 square feet it took in Times Square last year. Twitter, Microsoft and other technology companies are also trying to sublease unwanted space.
“Technology companies have been such a big part of the real estate landscape over the past five years,” said Ruth Colp-Haber, CEO of Wharton Property Advisors, a real estate brokerage. “And now that they seem to be winding down, the question is: Who’s going to replace them?”
Ms. Colp-Haber said it could take months for larger spaces or entire floors of buildings to be sublet. A large amount of sublet space also reduces the rents landlords are able to obtain on new leases.
“They’re going to undercut every landlord in terms of pricing, and they’ve got really nice spaces that are all built out,” she said, referring to the technology companies.
The technology sector has been a driving force behind New York’s economy since the dot-com boom of the late 1990s helped create the “Silicon Alley” south of Midtown. Then, after the financial crisis, the expansion of companies like Google boosted the economy when banks, insurance companies and other financial firms were in retreat.
Small and large technology companies he added 43,430 jobs in New York over the five years to the end of 2021, a 33 percent increase, according to the state comptroller. And those jobs paid very well: The average salary for technicians in 2021 was $228,620, nearly double the average salary in the city’s private sector, according to the comptroller.
Job growth has fueled demand for commercial space, and technology, advertising and media companies have accounted for nearly a quarter of new office leases signed in Manhattan in recent years, according to Newmark.
Microsoft and Spotify declined to comment further on their decision to lease the 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 “continually refining” its approach.
Several 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. Including the terminal, Google will own or lease about seven million square feet of office space in New York, up from about six million today, according to a company representative. (Google leases more than one 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 in 2019 canceled plans to build a large campus in Queens after local politicians objected to incentives offered to the company, however, as of 2019, it has added 200,000 square feet of office space in New York, Jersey City and Newark. The company will add roughly 550,000 square feet of office space later this summer when it opens a 424-ft.
“New York provides a fantastic, diverse talent pool, and we’re proud of the thousands of jobs we’ve created in the city and state over the past 10 years across our corporate and operational functions,” Holly Sullivan, Amazon’s vice president of worldwide economic development, said in a statement.
And while many tech companies continue to let employees work from home for most of the week, they’re also trying to lure workers back into the office, which could help reduce the need to sublease space.
Salesforce, the software company that has offices in a tower next to Bryant Park, said it is not considering subleasing its New York space.
“I’m currently facing the opposite problem in the New York tower,” said Relina Bulchandani, head of real estate for Salesforce. “There has been a concerted effort to continue to grow the right roles in New York because we have a very high customer base in New York.”
New York is and will remain a vibrant home for tech companies, industry officials said.
“I haven’t heard of a single tech company leaving, and that matters,” said Julie Samuels, president of the industry association TECH:NYC. “If anything, we’re seeing less of a decline among tech hires in New York than in other major cities.”
Fred Wilson, a partner at Union Square Ventures, said tech executives now feel less of a need to be in Silicon Valley, a shift he says has benefited New York. “We have more CEOs and more founders in New York today than we had before the pandemic,” Mr. Wilson said, referring to the companies his firm has invested in.
David Falk, president of the New York tri-state region for Newmark, said, “Right now, we’re working on several transactions with smaller, young technology companies looking to use sublease space.”
However, many firms are still pulling back.
In 2017 and 2019, Stockholm-based Spotify signed leases for a total of more than 564,000 square feet at 4 World Trade Center, becoming one of the largest tenants there. Soon, he had a space with all the accoutrements you’d expect from a tech firm—brightly colored flexible workspaces, breathtaking views, and ping-pong tables.
But in January, Spotify announced layoffs 600 peopleor about 6 percent of its global workforce. The company, which allows employees to choose between working fully remotely or a hybrid schedule, is also downsizing its office space and offering five floors for sublease.
“On days when I’m alone, I end up sitting in a boardroom all day to focus,” said Dayna Tran, a Spotify employee who regularly works in the downtown office, adding that employees who come in get motivated and create community by collaborating on an office playlist.