wolfstreet.com / by Wolf Richter / October 26, 2016
Bubble mentality collapses into tough business decision making.
The rumored second round of layoffs at Twitter – which in 2011 was granted by the befuddled city of San Francisco the “Twitter tax break” on employment taxes – comes at a very inopportune moment for the glory of commercial real estate. These layoffs would amount to 8% to Twitter’s workforce, or about 300 people, according to Bloomberg.
Already, Twitter has thrown 183,642 square feet of vacant office space at its two-building Mid-Market headquarters on the sublease market, thus bringing it to 1.51 million square feet (msf).
This comes at a time when, according to the “snapshot” from Cushman & Wakefield, leasing activity nearly ground to a halt in the third quarter, with only 875,000 sf leased – the lowest since 2001!
There was only one major lease deal over 100,000 sf: Amazon’s live streaming video platform Twitch, which took 178,000 sf. The next largest deal was less than half that size: WeWork leased 78,000 sf.
Leasing activity for the three quarters this year plunged 30% from the same period last year, to just 4.7 msf, according to a report released this week by commercial real estate services firm Savills Studley, which added dryly, “The competition for space has calmed dramatically from several quarters ago.”
And there is a lot of new supply coming on the market, according to Cushman & Wakefield: currently, 3.8 msf of office space are under construction, with 31% preleased.
Overall vacancy rose 0.7 percentage points from the prior quarter to 9.0% in Q3, according to Savills Studley. In Class A buildings, availability jumped 1.1 percentage points to 10.4%. Some areas were still red-hot, but others are turning cold: In the SOMA area, there were practically no vacancies (1.0%). But at the other end of the spectrum, vacancies at the Financial District South spiked 2.5 percentage points to 12.3%.
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