The Effects of Google’s Decision to Sell Office Space in San Francisco in the Context of the Bay Area at Large

About a year ago, Google was one of the first companies to reduce the amount of office space it controlled in the San Francisco Bay Area, moving the operations to other states in the United States like Washington, New York, and Georgia and even outsourcing them to foreign countries like India. In fact, Google reduced up to 1.4 million square feet of office space in the downtown area around Union Square and the like (McLean, 2023). Furthermore, this trend can be seen with other companies like Meta and X, who are similarly reducing operations in the Bay Area (Facebook Parent Company Meta to Downsize Bay Area Offices to Adjust to Hybrid Work, n.d.). The justification for this decision is multi-faceted. One of the main contributors is the layoff in the workforce, which occurred after over-hiring during the pandemic — Google massively over-hired during the pandemic as did several other tech companies due to increased traffic caused by lockdown procedures. Furthermore, due to the non-prevalence of remote-work technology at the start of lockdown, most of the hiring was local. Post-lockdown, these new hires were a large part of the workforce which was laid off. This is at least what the chief executive officer of Google, Sundar Pichai, said during a press conference (Council, 2023).

However, two other growing factors, which contribute to this issue at large, are the unreasonable real estate prices in the Bay Area and workers’ demand for remote jobs in the tech industry. The median cost of a home in the Bay Area is around $1.32 million, 2.14 times the national average (Marcus, 2023). Burgeoning real estate costs increase the difficulty of both renting and maintaining office space in the Bay Area as well as of employees to afford housing in the area. In fact, the situation is so bad that one of Google’s job compensations included paying up to 50% of its workers’ rents (Google’s Acclaimed Perks Take a Hit in New Cost-Cut Wave, n.d.). It is an unreasonable expense that greatly cuts into Google’s profits. The COVID-19 pandemic and era of remote work now really come into play because, for a lot of industries, they proved that meaningful office work can be done at home. Furthermore, remote work reduces the need for companies to buy expensive office space and equipment since most workers can afford them themselves and have better, more customized setups at home. A survey conducted in the Bay Area highlighted this trend, with 12.7% of workers working from home, 28.2% working in a hybrid model, a staggering 98% of workers wanting to work remote at some point, and 16% of companies already working on fully remote terms (Remote Workers by Education Level, n.d.). For Google and the tech industry, this manifests in the mass exodus of people moving out of the expensive Bay Area and into cheaper locations such as Texas, Georgia, and New York (Mann, n.d.). Even Google could not deny its extra $633 million in savings in the 2023 fiscal year due to scaling back its office space. This trend is similarly emerging in other large Bay Area-based companies (Council, 2023).

The effect of this trend is already visible in the Bay Area, mainly because tech workers make up a large portion of San Francisco’s population with high income and high spending. A reflection of this is the near 7.2% decline (about 60,000 people) in San Francisco’s downtown area (It’s Not Just Crime: What’s Really Going on with San Francisco’s Shrinking Retail District | CNN Business, n.d.). One of the key signals of this effect is the way it has affected the retail industry in the area, such as in Union Square. The stores in the area are dependent on foot traffic for their survival, but the effect of lockdown procedures, compounded with the shift to remote work, has caused a reduction in said foot traffic. Workers no longer visit the restaurants and cafes of Union Square, which also means that they shop less in the area.

This effect can be seen by the shuttering of major stores in the area; since 2019, nearly 95, or 47%, of the stores in Union Square have closed, including large brands like Nordstrom (Nearly Half of Union Square’s Stores Have Closed Since 2019, 2023). In January 2024, one of the biggest examples of this was the shuttering of North Face’s flagship and last store in San Francisco, a brand that originated in that same city (The North Face in SF’s Union Square Will Close at the End of the Month, n.d.). All of this paints a rather bleak picture of the Bay Area and its future.

In summary, large tech companies for the large part have been, for lack of a better word, trapped in the Bay Area. Before the COVID-19 pandemic, these companies hired and settled themselves in the Bay Area due to the availability of a computer science-focused workforce, which only increased year after year. Nevertheless, this made that same workforce extremely expensive to hire, and newcomers could simply not afford living costs due to rising real estate prices. Post-COVID-19, the era of remote work allowed both workers and companies, even entrenched firms like Google, to escape this cycle. However, this has also resulted in — or at least partially contributed to — the recent economic downturn and exodus of people and jobs out of the area into cheaper places.

Edited by Baran Pasa

References

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