Pinterest is shedding more of its Bay Area real estate as the San Francisco-based tech company grapples with weakening sales growth and adjusts to layoffs that have shrunk its global workforce.
The social media giant is preparing to pay up to $125 million to exit its lease at 505 Brannan St. in downtown San Francisco, according to a Securities and Exchange Commission filing. The move is the latest decision Pinterest has made to reduce its corporate real estate footprint, choosing not to renew leases for some office locations while subleasing or terminating deals for others.
"The company currently intends to continue to pay all contractual rent payments but plans to sublease all or a portion of our office space at 505 Brannan Street and negotiate early lease terminations, which could materially affect the company’s cash flows," Pinterest said in the filing.
The company said it expects to shell out between $100 million to $125 million in costs associated with the plan, up to $115 million of which will be paid before the end of this month. "The actual amount and timing of any resulting impact to cash flows will depend on the outcome of any negotiations with landlords and potential subtenants."
Pinterest signed the roughly 148,150-square-foot lease in 2015 for the Brannan Street building, which is owned by one of Singapore's largest commercial real estate investors, Ascendas Real Estate Investment Trust. The deal was originally set to expire in 2033, according to CoStar data.
The space will be added to San Francisco's sublease market, which has been flooded over the past several years as tech companies similar to Pinterest have offloaded millions of square feet of space in order to trim expenses, accommodate remote or hybrid work schedules, or relocate to smaller spaces.
“Our hybrid working model, PinFlex, empowers Pinterest employees worldwide with the flexibility to choose where they work best — whether that’s at home, in one of our offices, or a co-working space," a company spokesperson told CoStar News. "With this flexibility, our global workforce is now distributed across more cities and countries than ever before and spending less time in our offices. We made the decision to strategically reduce our square footage in select locations to better align how Pinterest employees are choosing to work with our goals for business efficiency and sustainability.”
The spokesperson added that Pinterest will also close an office at 149 Bluxome St., a roughly 19,300-square-foot building near its downtown San Francisco headquarters at 651 Brannan St. The company also decided against renewing space it leased at 410 Townsend St.
Pinterest renewed the lease for its global headquarters, where it occupies about 119,225 square feet, last year as part of a deal that won't expire until 2029.
Wave of Cuts
Similar to other social media companies, Pinterest benefited from a financial boost during the pandemic lockdowns when people stayed at home and spent most of their time in front of a phone or computer screen. However, macroeconomic challenges and declining advertising and sales revenue over the past year have meant companies are prioritizing profits over growth.
The company is now among a host of Silicon Valley tech giants making deep cuts to their real estate portfolios by shutting down office locations, subleasing unwanted space, terminating prelease agreements and walking away from future investments.
Pinterest was one of the first tech companies to walk away from a major lease agreement in late 2020 for an unbuilt San Francisco development, foreshadowing tech companies' weakening appetite for upscale Bay Area office space in the years to follow. The image-sharing company agreed to pay a one-time fee of $89.5 million to the 88 Bluxome St. developers, TMG Partners and Alexandria Real Estate Equities. The termination meant it was no longer liable for the $440 million minimum lease payments.
The moves among companies like Pinterest have been a worrisome sign for a national commercial real estate market that has come to rely on major tech leases, particularly in cities such as San Francisco, New York, Seattle and Los Angeles.
With one of the highest sublease rates in the country, San Francisco has been especially overwhelmed with tech companies dumping unwanted space. As the demand for office space craters in and around the city's downtown, vacancy has shot up to surpass 20%, according to CoStar data.
Office tenant departures continue to outweigh new leasing activity and there are no signs of a turnaround in demand, according to CoStar analysis.
San Francisco has upwards of 12.2 million square feet of office space on the sublease market, according to CoStar data, pushing the market's total availability to about 23%. To compare, the national availability rate for office space is less than 16.5%.