4/5/2021 JPMorgan, Salesforce Join Growing List of Firms Dumping Office Space - WSJ This copy is for your personal, non-commercial use only. To order presentation-ready copies for distribution to your colleagues, clients or customers visit https://www.djreprints.com. https://www.wsj.com/articles/jpmorgan-salesforce-join-growing-list-of-irms-dumping-ofice-space-11617096603 PROPERTY REPORT JPMorgan, Salesforce Join Growing List of Firms Dumping Office Space Rise of remote work means demand for ofice space could be permanently lower for some companies JPMorgan started marketing 700,000 square feet of ofice space in lower Manhattan earlier this year. PHOTO: JUSTIN LANEEPASHUTTERSTOCK By Konrad Putzier Updated March 30, 2021 521 pm ET Listen to this article 5 minutes JPMorgan Chase & Co., Salesforce. com Inc. and PricewaterhouseCoopers are among the major firms looking to unload big blocks of office space, the latest sign that remote work is hurting demand for this pillar of commercial real estate. Large companies typically sign office leases for a decade or longer, giving them few options for reducing their footprint beyond trying to sublease floors to other tenants. At the end of 2020, 137 million square feet of office space was available for sublease across the U.S., according to CBRE Group Inc. That is up 40% from a year earlier and the highest figure since 2003. https://www.wsj.com/articles/jpmorgan-salesforce-join-growing-list-of-firms-dumping-office-space-11617096603 1/4 4/5/2021 JPMorgan, Salesforce Join Growing List of Firms Dumping Office Space - WSJ While sublet space increases during every recession as struggling businesses look to cut costs, firms typically add office space when the economy picks up again. But this time many of the companies ditching real estate are doing well financially; they say they need less space because they plan for more employees to work at least part time from home even after the pandemic is over. That raises the prospect that demand for office space could be permanently lower at some companies, much like the rise of e-commerce has been driving down demand and rents for street-level retail. This flurry of subleasing activity is already causing fresh headaches for landlords. Office rents for more expensive space, including concessions, fell around 17% over the past year in New York and San Francisco and 13% nationwide, according to real-estate firm JLL. Space available for sublease as a share of all ofice space % Q4 2000 Q4 2005 Q4 2010 Q4 2015 Q4 2020 Source: CBRE Sublease space usually comes with an additional 25% discount, said David Falk, president of the New York tri-state region at real-estate services firm Newmark. And since firms can sublease on short notice, rising sublease availability can serve as an early indicator of the true state of the office market. https://www.wsj.com/articles/jpmorgan-salesforce-join-growing-list-of-firms-dumping-office-space-11617096603 2/4 4/5/2021 JPMorgan, Salesforce Join Growing List of Firms Dumping Office Space - WSJ The speed at which sublet availability has been rising is “astonishing,” said Phil Ryan, director of U.S. office research at JLL. Some companies are merely testing what they can get by subletting and may ultimately decide to keep their space, brokers say. But by adding to office supply when there are few takers, they are helping push down rents across cities and at times could compete for business with their own landlords. JPMorgan started marketing 700,000 square feet of office space in lower Manhattan earlier this year. That is the largest block of space available for sublease in Manhattan, according to real-estate services firm Savills Inc. PricewaterhouseCoopers and Yelp Inc. have also listed space in New York for sublease, brokers say. FUTURE OF THE OFFICE •The Death of the Ofice Desk Is Upon Us (Jan. 13) •Why the Ofice Isn’t Going Away (Dec. 13) •New York City Tech Startups Rethink Their Ofice Space and Culture (Nov. 1) •When It’s Time to Go Back to the Ofice, Will It Still Be There? (May 16) Salesforce has listed space for rent in one of its San Francisco office buildings. Uber Technologies Inc. and Wells Fargo & Co. are also adding to sublease availability in that city, though the companies have indicated that decision was unrelated to work-from- home policies, say people familiar with the matter. Tech companies, until recently the most aggressive acquirers of office space in cities such as San Francisco and New York, are now at the forefront of the sublease boom. These companies have in some cases embraced remote work faster than other industries, analysts say, and are more willing to reduce real-estate exposure as a result. In previous years, tech companies often leased more space than they needed at the time to be prepared for growth, JLL’s Mr. Ryan said. This practice, dubbed space banking, has left some with too much office space that they are now trying to get rid of. https://www.wsj.com/articles/jpmorgan-salesforce-join-growing-list-of-firms-dumping-office-space-11617096603 3/4 4/5/2021 JPMorgan, Salesforce Join Growing List of Firms Dumping Office Space - WSJ When cloud-storage company Dropbox Inc. agreed to take over a 700,000-square-feet- plus office development in San Francisco in 2017, it was billed as the largest office lease in the city’s history. But recently, the company sublet a large part of the space to two biotech companies at discounted rates. Dropbox has said most of its employees will primarily work from home in the future, citing surveys showing that most prefer to do so and a study that found workers are more focused at home. Companies that put space up for sublease often have little choice but to accept steep losses. Dropbox said during a recent earnings call that it expects to earn more than $800 million by subleasing real estate, but it will also write down the value of its leases by around $400 million because sublease income is lower than the rent it pays. SHARE YOUR THOUGHTS Do you expect to return to an ofice building, and if so, when? Join the conversation below. Big financial companies and law firms, both popular tenants because they are willing to pay high rents, are also ditching office space, brokers say. And the suburbs aren’t immune either. A number of companies are looking to get rid of call centers and other back-office facilities in cheap locations, Mr. Ryan said. In the Chicago suburbs, healthcare provider AMITA Health recently put up its headquarters for sublease. Like Dropbox, the company surveyed its employees and found that many liked working from home, said the company’s chief operating officer, Thor Thordarson. “Our associates’ desire to work remotely and our ability to provide alternate work environments, in turn, requires less physical office space,” he said. Write to Konrad Putzier at [email protected] Appeared in the March 31, 2021, print edition as 'Office-Space Subleases Flood Market.' Copyright © 2021 Dow Jones & Company, Inc. All Rights Reserved This copy is for your personal, non-commercial use only. To order presentation-ready copies for distribution to your colleagues, clients or customers visit https://www.djreprints.com. https://www.wsj.com/articles/jpmorgan-salesforce-join-growing-list-of-firms-dumping-office-space-11617096603 4/4.