The parent company of Snapchat is weighing a move to offload up to three-fourths of the corporate space it occupies for its headquarters in Santa Monica, California, becoming the latest tech giant to re-evaluate its property needs in the wake of the pandemic.
If realized, Snap Inc. could cut as much as 300,000 square feet from the buildings it leases at the Santa Monica Business Park in the Los Angeles area, according to people with knowledge of the pending decision. The firm is considering the move even after cutting back on hybrid-work arrangements and directing employees to spend the majority of their time in physical offices.
Southern California-based Snap leases roughly 450,000 square feet across several buildings at the 21-property Santa Monica Business Park, which collectively spans nearly 1.2 million square feet. The tech company consolidated some of its corporate operations at the campus about five years ago with the signing of an initial 300,000-square-foot lease.
In mid-2021 Snap added another 145,000 square feet by filling most of the space vacated by video game producer Activision Blizzard, making it the park's largest tenant.
Snap representatives did not immediately respond to CoStar News' requests for comment. Santa Monica Business Park landlord Boston Properties declined to comment on details about the tech company's tenancy at the campus.
Back To Office, Sort Of
News of Snap's possible downsizing, reported earlier by Commercial Observer, comes as the company grapples with the fallout from a pandemic that initially boosted the fortunes of tech companies only to see many retrench after the health crisis eased.
Many big tech firms benefited from a financial boost during the pandemic lockdowns when people stayed home and spent more time in front of a phone or computer screen. Tech companies hired aggressively to keep up with the sudden growth spurt, signing massive office deals and acquiring billions of dollars of real estate around the world that was intended to house their expanding workforces.
However, macroeconomic challenges and declining advertising revenue over the past couple of years led many companies to begin to rethink their growth plans and cut back. Tech giants such as Alphabet's Google, Meta, Microsoft, Amazon and others have continued to make deep cuts to their real estate portfolios by shutting down office locations, subleasing unwanted space, terminating prelease agreements and walking away from future investments.
At the same time, companies such as Snap have phased out predominately remote-work policies and have become increasingly vocal in their belief that in-person work is directly correlated to increased productivity and profitability. The Snapchat parent implemented its revised in-office mandate earlier this year in which workers were told to be in the office for at least 80% of the time.
Other tech firms such as Zoom, TikTok, Google, Apple, Meta and Salesforce have also recently clamped down on previously lenient work arrangements. Those moves appear to have marked a turning point for a pandemic-era shift toward flexible work that has been watched closely by owners of office properties counting on usage to return to pre-pandemic levels.
Even so, the escalated in-office mandates have done little to combat the nation's record-high vacancy rates as office use remains stubbornly below pre-pandemic levels in major metropolitan areas around the country, according to data tracked by Kastle Systems and its office entry-card-swipe systems.
What's more, softening demand occurring at a time when a large amount of new office construction is reaching completion has pushed the national office vacancy rate up even higher, to more than 13.5% nationally, according to a CoStar analysis. Tenants have now collectively dumped nearly 175 million square feet since the beginning of 2020 according to the data, much of which has been concentrated in major tech markets such as San Francisco, Los Angeles and New York.