Dropbox is returning 165,000 square feet of their San Francisco headquarters to their landlord, making up about a fourth of the total there. Additionally, Uber is reportedly close to leasing some of their headquarters to OpenAI. Office vacancies in the city are the highest that has been recorded since 2007.
On Friday, Dropbox reported that it had reached an agreement with its landlord to return over one quarter of the company’s San Francisco headquarters in light of the Covid-19 pandemic’s effect on the commercial real estate market. The filing stated that Dropbox would downsize the space of 165,244 square feet over time, and would pay the termination fees totaling $79 million. Since shifting to a “Virtual First” model three years ago, the cloud software vendor had been trying to decide what to do with its massive 736,000 square feet space in Mission Bay, the largest office lease in the city’s history. As of last year, the company had subleased about 134,000 square feet to Vir Biotechnology and just over 604,000 square feet remained unused, leading to a $175.2 million impairment loss “as a result of adverse changes” in the market. The vacancy rate of San Francisco offices in the third quarter was the highest since 2007 at 30%. The company spokesperson said, “We've taken steps to de-cost our real estate portfolio as a result of our transition to Virtual First, our operating model in which remote work is the primary experience for our employees, but where we still come together for planned in-person gatherings.” The move is beneficial to Dropbox, however, it indicates that demand for office space remains weak, which could be detrimental for the tech industry after the pandemic and rounds of layoffs early this year, including the 16% cut of the Dropbox staff by its co-founder and CEO, Drew Houston. The 2017 lease for 15 years was sold to KKR for over $1 billion. Dropbox noted that the amendment would avoid future cash payments on rent and common area maintenance fees totaling $227 million over the remaining 10 year lease term. As Dropbox struggles to sublease its space, Uber has experienced similar difficulties with its headquarters nearby, but Microsoft-backed OpenAI is reportedly close to taking some of that space.
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