Airbnb Shows How San Francisco’s Office Shortage Is Suddenly a Historic Glut: Hogging Vacant Space for a Future that Never Came

They all did it, from Salesforce, Uber, and Twitter on down. It was pure magic, a show produced with enormous hype. Now they’re all trying to get out at the same time.

By Wolf Richter for WOLF STREET.

When Airbnb reported a net loss of $1.17 billion for Q1 last week, it also disclosed in its shareholder letter that this loss included a $113 million expense that it expects as it is trying to “exit” an office lease in San Francisco “that we deemed no longer necessary given our restructuring and cost cutting efforts.”

The $113 million expense represents its estimate of the difference between what it would get by subleasing the space to new tenants and what it will have to pay the landlord and related expenses over the remaining term of the lease. But that’s a cheaper way out than letting it sit vacant and paying the landlord until the lease terminates.

What’s fascinating about this is just how much office space Airbnb had secured with long-term office leases during the years of the so-called office shortage that it never even occupied, and that by leasing office space that it didn’t need, it had further increased the office shortage at the time.

Airbnb’s disclosure relates to its 287,000 square feet (sf) at 650 Townsend St. in the South of Market area. According to the San Francisco Business Times, Airbnb had leased the space in 2017 for a term of nine years. But it only ever occupied 170,000 sf of it. The rest had remained vacant for all these years.

This brings the total amount of office space in San Francisco that Airbnb is now trying to sublease to 427,000 sf, spread over three buildings. The represents about half of Airbnb’s total office space in San Francisco.

They all did it, from Salesforce, Uber, and Twitter on down, chasing after office space they imagined they might need in the future, assuming endless rapid growth of everything. And by leasing office space they didn’t need and often didn’t occupy, they also aggravated the office shortage, all along driving up office rents into the ludicrous realm.

It was pure magic, a show produced with enormous hype. And now they’re all trying to shed this vacant office space – from Salesforce, Uber, and Twitter on down – by putting it on the sublease market all at the same time, thereby unwinding those office dreams, and thereby creating San Francisco’s worst-ever historic office glut.

In San Francisco, sublease inventory exploded to a new historic high of 8.9 million square feet in Q1, according to real estate services provider Savills. The total availability rate (sublease and direct lease from landlords) rose to 23.6% of total office space. And Class A asking rents fell by 15% year-over-year.

But the drop in asking rents is not an adequate measure in this environment because actual leases are being signed at 10% to 15% below asking rents, and because huge incentives are being negotiated on top of it, such as improvement allowances up to $80 per sf more than in pre-Covid deals and an extra three months of free rent, according to John McNellis of McNellis Partners.

Leasing activity in Q1 collapsed by 85% from Q1 2019. Of those few leases that were signed, over half were lease renewals. This is the environment Airbnb is facing in trying to sublease its unneeded office space.

Airbnb’s stock [ABNB] has been having a hard time in recent weeks, and given the $1.17 billion loss in Q1, it makes sense for the company to try to cut costs. Since the closing high on February 11, the share price has dropped 38% to $136 at the moment (data via YCharts):

In terms of bringing employees in San Francisco back to the office versus working from anywhere, Airbnb is going to create a hybrid model.

“We want to model the live-anywhere lifestyle. So by modeling the live-anywhere lifestyle, we’re going to allow more flexibility for our employees,” said CEO Brian Chesky during the earnings call (transcript via Seeking Alpha).

“I told our employees, they don’t have to come back to the office until next September. And even when we do ask people to come back, they’re going to have a lot more flexibility than before,” he said.

“People aren’t going to be expected to come back to the office five days, week every week. We think that is really not how most workplaces in the 21st century are going to operate,” he said.

“We also do think that in-person collaboration is important. So we want to find some balance between modeling the live-anywhere lifestyle and allowing for in-person creative collaboration. And that’s what we’re designing,” he said.

They’re all doing it. Dropbox, in February, disclosed a $400 million charge related to exiting its headquarters space in San Francisco. Salesforce, after it had announced in February that it switched to a hybrid work-from-anywhere model, disclosed in March that it canceled the lease for 325,000 sf of space in an unbuilt Tower in the Transbay area. And it put its 225,000 sf at 350 Mission St. on the sublease market. Uber and Twitter and a slew of others have all put large portions of office space on the sublease market. And since they’re all doing it, it’s hard to see a recovery of the San Francisco office market.

Airbnb will be able to eventually find a tenant, if the rent is low enough, given how lavishly these office buildings have been fixed up. If the rent is low enough, companies are going to leave their old digs when the lease terminates and move in for a big upgrade, possibly for less. The flight to quality. This will cause vacancy rates to gradually move down-market, but that takes years, given the length of typical commercial leases.

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  142 comments for “Airbnb Shows How San Francisco’s Office Shortage Is Suddenly a Historic Glut: Hogging Vacant Space for a Future that Never Came

  1. Artem says:

    WolfStreet can finally find a deserving headquarters.

    • Cas127 says:

      And we can all live there.

      • Anthony A. says:

        You mean some of us would have to leave Texas?

        • NBay says:

          No. Wolf isn’t that mean, you will be allowed to work from paradise (WFP), in fact he may insist.

        • NBay says:

          And in the spirit of the well established business practice, “…”disclosed” a $400M “charge”…”, (love that “disclosed” and “charged” new-speak) which I believe (having no Econ background) could also be called, a “we FD up, sorta Capex, Expenditure”, for tax purposes, there will be a sealed room for you at WS Media Empire SF headquarters, should you ever decide to vacation somewhere in CA….just don’t walk around barefoot, (poop and needles, etc).

        • Billybob says:

          I thought Texas was a state of mind.

    • MCH says:

      Especially if there is a fire sale of assets. May be a nice floor in Salesforce Tower.

      The LED display could be that of a howling wolf…

  2. MonkeyBusiness says:

    When it rains, it pours!!!

    • andy says:

      I just knew it they will finish Salesforce tower just in time. It was practically empty even before pandemic btw.

  3. Michael says:

    I do not see a happy ending here for landlords.

    • G. Carr says:

      What are the names and breakdowns of financial commitments for the landlords (including REITs) with the greatest exposures to suffering the most major losses from the glut of business and residential space in the San Francisco bay area as a whole? That information would be extremely interesting to investors (such as myself!).

      • NBay says:

        I’m not an investor, but would also be interested in just who it is who finally takes it in the “economic buttocks”, once all the bean counting and lawyering has been done according to our “due process” laws and such.

        I suspect it will all just be piled on the National Debt, which seems to have been the program since 1980. It does provide a tremendous and creative business incentive, nobody can argue against that. May even create some jobs.

    • MiTurn says:

      One of those “all the eggs in one basket” stories.

      • Cas127 says:

        The lack of easy geo diversification has always been a major negative for all sorts of real estate investments.

        That and being a voluntary hostage to the integrity/competence of local governments.

    • Michael says:

      How does do they lose money on the first place?

      They are just a broker of real estate?

  4. Harrold says:

    AirBnb really need to think outside the box and adjust to the new paradigm.

    They should buy a couple thousand cots and convert their offices into a giant hostel.

    • Heinz says:

      Three hots and a cot for offenders.

      How about repurposing all that space to a minimum security detention center for criminal justice system? There is future growth in that business.

      • KGC says:

        The smartest thing to do along these lines is outsource it to the cheapest bidder overseas. There’s no reason any liaisons between convicts and their lawyers, etc, couldn’t be done via Zoom (or such).

        You could even make escapes less likely by segregating the populations in areas where they do not speak the local language. Place a minor bounty on their heads if they do escape and help third world nations increase their GDP.

        It’s not PC, but there’s no reason the USA should have such a large prison economy and not force it to undergo the same competition as every other one. If you can offshore the military industrial economy you can surely do that with the incarceration one.

        • taxpayer says:

          “There’s no reason the USA should have such a large prison economy.”

          Stop right there.

      • NBay says:

        Heinz, Harrold,
        Both excellent ideas. Between the many travel/experience hungry youth, and all the white collar criminals (assuming enough of the latter are ever chased down), it just might work.

    • Petunia says:

      They could have been making money this entire time, housing the homeless in their office space.

      • MiTurn says:

        Petunia, you’re funny!

        Imagine, just imagine, the interiors a year later…

        Talk about losing value.

        • Nathan Dumbrowski says:

          Bill the convict and if they can’t pay well then bill Uncle Sam. Duh

        • NBay says:

          Yeah, “common sense” studies have shown homeless prefer pooping on the floor rather than in toilets, even given the choice. An established and well accepted part of the psychological makeup of all economic losers. Even Petunia may still have to fight that urge.

          Although some are great artists, and one masterpiece on the wall may offset poop cleaning in 100 other rooms.

      • Noble says:

        Whether they make money or not, they would have earned good name and karma!

    • John Taylor says:

      Even better…
      If AirBnB can turn residential housing into commercial hotels through “technology,” then why can’t the same technology let them turn commercial office space into makeshift apartments, list them on their site, and rent them out?

      • Dr. Hilarious says:


        • NBay says:

          Right John, wrong Dr H.
          In the Gilded Age, most poorer city sweat-shop workers lived in large packed tenements with a single “down the hall” bathroom. So the existing office ones will work just fine, and they all know know to use the sink or toilet tank to strip and clean themselves with a washcloth. I’ve seen it personally in the stalls at our Public Library. Worst problem is an extra thorough cleaning/mopping with disinfectant, which should be done daily, anyway.

    • c1ue says:

      Interesting idea but that property is too far away from anything to be of interest.
      It is true that the gigantic homeless encampment 2 blocks away has largely been dissolved. Also that there are a couple of nice new apartment complexes right near Airbnb.
      But that area still isn’t great. Not a lot of restaurants although there are a couple of grocery stores nearby.
      With the Pandemic changes to public transport – there is only 1 bus that even goes anywhere near there, at this point.

      • NBay says:

        Your choice of words is sorta odd. “Homeless encampment largely “dissolved” ?…like pouring strong acid on them and their small collections of stuff, and hosing it all down the storm drains? (many would be all for that, unfortunately)
        Besides that observation, your comment doesn’t make much sense at ALL, but the I’m not the brightest bulb here.

        • c1ue says:

          Dissolved by the City of San Francisco sending in DPS troops to clear them out.
          They aren’t tossed out by police, by and large, but by sanitation workers putting up markers and telling them to move it or lose it.
          As for the rest of the comment – as I actually pass by that building regularly – it is a description of the actual environs.
          Which is to say: a slightly gentrified area which is now going backwards due to WFH plus lack of public transport. Huge sections of SF were completely cut off from public transport at the height of the COVID lockdowns and resulting SFMTA cutbacks. Service has been restored for much of the “core” (i.e. rich) areas but the outlying ones are still pretty spotty.
          Here is what SFMTA is supporting now:
          And here is what the Pre-COVID SFMTA route map looked like:
          Changes in public transport have seen 50% reduction in coverage, easily, in the area I note.

        • NBay says:

          Thanks, didn’t realize you had gone from what I took to be general commenting, to a very specific area you been observing.

  5. Inno says:

    So when do they drop all the employees whose only real function is to ensure others show up at desks, manage that space, secure it, maintain and upgrade it, entertain it, feed it…account for it, lawyer it, etc. ?

    Labor, Indirect Overhead, in other words…

    • Briny says:

      That’s an interesting question for the people that work in facility management, blue and white collar, which should be reduced especially as businesses shed flooring, while the IT personnel has been markedly increased. If I were in facility management, I’d be seriously considering adding some IT skills to my portfolio, especially with the whole Internet of Things (IoT) technologies taking off. Synergy, and most IT types don’t have skills the other direction. [I do, but I’m several types of engineer besides all the IT types.]

    • Thomas Roberts says:


      Since the pandemic started, I’ve thought that alot of layoffs will start, once the pandemic is over (at least for America, the pandemic will rage on in some other countries for upto several more years). It will also have to be after the enhanced unemployment ends for many companies. Many companies already had more employees than they needed, but firing a bunch of employees look bad and well off companies can hang on to these employees, until something like a recession hits. During a recession, companies can fire with less blowback. If you do layoffs not during recessions, many of your best employees may think the company is in trouble or that they could be next and jump ship. Also some companies, especially those pre initial public offering, may see their value drop, if they do layoffs.

      So the answer is some soon, more later, but it largely depends on whether a recession is coming soon. Whether the fed and congress does a bunch more stimulus to push off a recession temporarily and whether certain companies in the sector or area “act like leaders” in starting large layoffs. Whether enough people come out of “hidey in the house” mode to push things back towards normal and other factors.

      Over the next 10 years, between small businesses losing out to large businesses, automation of many types, working from home, outsourcing office jobs, switching full time office jobs to gig workers, eliminating redundancy and many other factors; quite a lot of office jobs, maybe more than half could be permanently lost.

      As always, I’m not advocating for this, it’s just something that could happen.

    • c1ue says:

      The janitors and what not are likely an extremely tiny part of Airbnb’s labor expenses.
      What I am watching closely is to see whether/how fast the WFH extends to the Phillippines, India etc. If people can work from other US states, they can work from other countries. If language is an issue – the relative pay differentials will pave that over soon enough either via language classes or outsourcing entire divisions.

  6. This is another painful example of Bubble Thinking where stock prices will always grow to the sky, and possibly, we might even have positive cashflow along the way. However, speculation is speculation. More seasoned business heads would, if at all, waited to see how operating results really materialized instead of planning for a future based upon whimsical prognostications.

    The world of Wall Street, with all of its hot air pumping, is a far cry from the reality on the ground in Corporate America, and the streets of the financial district in San Fran are a prime example of the dichotomy of same. Wall Street is starting to meet Reality as we converse. Couldn’t happen to a more deserving Bubble Blower.

    • 91B20 1stCav (AUS) says:

      DWY-figuratively speaking, not enough business heads have ‘rolled’ in the last 30 years to leave an honestly-‘seasoned’ cadre among the survivors…

      may we all find a better day.

      • NBay says:

        Great application of a totally natural military on-the-ACTUAL-job “management” culling result (at all levels), to “totally riskless” civilian management.
        More errors in judgement and decision making MUST have consequences.

        We do need HONESTLY “seasoned cadre”, badly.

    • G. Carr says:

      What we have here, folks, is a real-life example of the tried-and-true phenomenon, “Figures lie and liars figure!” Have you ever seen one of those dazzling Power Point presentations designed solely to wow the minds and wallets of Wall Street and venture capital opportunists, all of whom do a pretty darn good job of making Fred Astaire appear as a paraplegic? None of those show persons has ever been held accountable for projections and representations that turn out to be nothing more that pure fantasies.

    • Cas127 says:

      At a certain level of corporate expenditure stupidity, you have to ask yourself if insider self-dealing isn’t involved (kickbacks).

      It certainly was true for the Mattress Firm.

      Since corp life is nothing if not regimented and bureaucratic, facially stupid/hopeless ideas usually have to be championed and pushed hard by high level personnel…the obvious question always being…”why?”

      (See 70% of discretionary government spending).

      The not infrequent answer…somebody is being greased.

    • Heinz says:

      Sorry to say, but all the adults in Wall Street, finance, and business left the last train from the coast a long time ago. The fable Bond Vigilantes rode into the sunset decades ago as well.

      • Old school says:

        Maybe stockholders are the new bond vigilantes. Once bell rings, going to be a fast exit with all the leverage and computer algos.

        • Cas127 says:

          The difference is that Bond Vigilantes would dump bonds (forcing rates back *up*) in order to enforce something remotely like DC spending control.

          All equity vigilantes can do is dump stocks…causing Fed to *gut* interest rates in order to re inflate equity.

          That is the exact *opposite* of enforcing spending discipline.

          Equity holders at triple valuation aren’t vigilantes looking for justice…they are cultivated junkies insane for a fix.

  7. gl says:

    This should be a win-win for SF. They could change zoning, negotiate discount rates and provide free housing for the homeless and all immigrants that they provide sanctuary for. It is the right thing to do and will set a good example. Just raise taxes on those who are still working, no problem.

    • G. Carr says:

      Surely you jest!

    • Ron says:

      Better idea u pay for it

    • Cas127 says:

      Or an idled downtown bldg could be selected for close-in use by the SF poop patrol, creating the world’s largest composter.

      SF is famously green and full of sh*t.

    • A says:

      I know this is sarcasm but you’re unintentionally correct about 1 thing: this is good for San Francisco.

      Too much success for any group anywhere breeds “don’t fix what isn’t broken” thinking that results in societal rot. Why clean up the homeless problem when everyone is getting rich – the system is working so don’t rock the boat!

      Prices coming down, jobs leaving, excess people and congestion finding their way to the exits, it’s all good. It’s good like an intervention is good for an addict. It hurts for a moment but it creates the impetus to actually address the real problems.

      I think this is the beginning of a much better San Francisco than we’ve seen for the last 5 years.

      • Cold in the Midwest says:

        I hope you are right. The trashing of that once-great city has been an infuriating thing to watch.

    • c1ue says:

      Interesting theory except reality shows that this will never happen.
      Between NIMBY and huge rental housing tycoons – such policies have zero chance of occurring.
      The only real benefit might be that the actual property tax rates paid on these new developments might start changing upward – but I wouldn’t hold my breath on that either.

  8. Mr Wake Up says:

    Of course the pro WEF companies had to play the we will keep our safe spaces sorry meant office spaces when they knew their new normal design was in introduction mode why cause panic let time take its course..

  9. Heinz says:

    “Airbnb is going to create a hybrid model.

    “We want to model the live-anywhere lifestyle. So by modeling the live-anywhere lifestyle, we’re going to allow more flexibility for our employees,” said CEO Brian Chesky during the earnings call (transcript via Seeking Alpha).

    “We also do think that in-person collaboration is important. So we want to find some balance between modeling the live-anywhere lifestyle and allowing for in-person creative collaboration. …”

    My take: So, if employees still are expected to work in corporate offices ‘X’ days a week then it postulates that most still have to live within commuting distance of said offices.

    So the ‘live-anywhere’ lifestyle is a fantasy unless workers can afford a private jet or helicopter to zip back and forth to work from Tahoe or Aspen (admittedly, many of C-Suite executives could do just that).

    • Seneca's cliff says:

      Who knows, along with this live-anywhere-lifestyle most employees might be converted to contract workers. Then they will have a hard time getting a mortgage, so they will have to live in AirBnb’s. Not the fancy ones but the ones where you get a cot in the corner of the rec room. Kind of like the company store in the old coal mining towns.

      • Thomas Roberts says:

        I’d imagine, many well off companies, could create a smaller more fancy headquarters for the execs and certain employees and then have smaller offices scattered in cheaper cities. Alot of work could be outsourced (to other countries or abroad) or given to gig workers.

        It’s possible that once or a few times a year, the company could have a get together and meet at a convention center.

        • Heinz says:

          “It’s possible that once or a few times a year, the company could have a get together and meet at a convention center.”

          You mean, sort of like a corporate family reunion …?

        • Thomas Roberts says:

          Yes, there could be some sort of collaboration, it might be useful to occasionally have the workers (not necessarily all of them) from across the country meet together, they might arrange the conventions at nice hotels and give out suites.

          It could be like a vacation with some/mostly work or be all vacation. This could be a major perk for some companies to give to employees.

        • NBay says:

          When corporate executive office staff is shrunk down small enough, they can have the yearly corporate games, like in Kurt Vonnegut’s, “Player Piano”.
          He saw a lot of stuff coming, and did pretty well at predicting, and it aint over yet.

          Oh, yeah. In the book everyone else just drank beer and had two choices, join the Army or work on the roads.

      • Jdog says:

        If they can live anywhere, they will be outsourced for much less money overseas. Manufacturing I am afraid was only the first round of what will be a continuing trend to harvest jobs from the US and transplant them elsewhere whenever that is possible…
        I expect many places in the US will look like Detroit, and the rust belt in a decade or two…

        • NBay says:

          If anyone remembers “Alex from silicon valley aka digital Detroit”, he likely did something similar to what one of my brothers did; got an Elect Tech degree from JC, went to Silicon Valley, landed a decent job at Watkins-Johnson. Had to share an apt with a co-worker, but that allowed him to get a Triumph Spitfire and chase girls seriously. Anyway he soon left, took FULL advantage of family connections, and ended up flying 757-767s for AA.
          So poor Alex stuck it out, was outsourced like all ETs were, and ended up working for a guy with an electronics junkyard who let him live in the warehouse, and played trumpet on the street for extra money.

          Don’t always agree with Jdog, but that last sentence has some pretty scary truth in it.

      • NBay says:

        YEP! Like I’ve said before, a contract worker is MUCH better than a slave. Push a button and forget about them entirely.
        Leave that office at your own peril, at least they have to face you when they fire you….HR can’t remove all human contact/relationships…even friendships.

    • Ron says:

      And this is what’s wrong in America c-suite pay out of control with corporate boardrooms all ceo,s and priveledged taking care of each other disgusting stop buybacks pay the workers

      • MiTurn says:

        Agreed. Plus their “we know better than the hoi polloi” social ideologies.

        I guess I’m still haven’t ‘woken up.’

        • NBay says:

          Can’t we just be “snowflakes” again, Mi?
          Sounds so much better than “woke”….even more poetic….

    • Michael Gorback says:

      That happened to a friend of mine. She lost her job 5 months ago and finally found a decent job with good benefits. She has to work in the office 2 days and from home 3 days per week.

      Last year she bought a house in Kemah, TX and the job is in the Woodlands. That’s about an hour drive one way.

      So she has a new house that she just fixed up, a ballooning housing market in the Woodlands, her sister and friends are in Kemah, and even in the old days it would have been crazy to make that kind of a housing jump until you felt good about the job.

      An Uber driver in SF told me that he and several other drivers share a rental. They take turns using the rental in SF when they want to make some money. He goes back and forth from Fresno, where he’s from.

      I’ve seen airline flight attendants do something similar.

      Instead of AirBnB maybe they should develop micro time sharing.

      • Mike G says:

        Pilots and flight attendants have long done this, dormitory-style lodgings for regular overnight stays according to their schedule — called crashpads.

        • NBay says:

          Brother told me at the overnite Buenos Aires hotel AA had them stay at, they all taught the parrot in the lobby to say “Crandall Sucks”. He was the extra high-living CEO of AA at the time.

    • Nathan Dumbrowski says:

      Call Center IT checking in. Most companies are going to a hybrid model. The people must come into the office X days a week. They are just testing the waters to see if they can entice the people back into the pens. Don’t want to push to hard but they want to see if people will adopt a portion of onsite. Control is what it seems like. They lost all control of the workforce and some benefited and some slacked and took it tooooooo far

  10. Stan Sexton says:

    Obviously these office buildings and shopping centers need to convert to residential use. Might make cheap senior housing.

    • Wolf Richter says:

      Stan Sexton,

      There are some discussions about office-to-housing conversions in San Francisco. It’s the obvious solution – until you look at the costs. It takes a lot of money and many years. Most often, it’s financially only possible after the building was returned to lenders, and they’re selling it to a developer for cents on the original dollar. The developer would then have a much lower cost basis and could then spend the money needed to gut the building and build modern housing units.

      For a mall to be redeveloped as housing, the mall gets bulldozed. The tilt-up concrete walls that malls are made out of are worthless for anything but malls. They’re planning on doing that at the Stonestown Galleria in SF. They’re planning to put something like 3,000 housing units on it, plus some “main street” type shopping and restaurants. Part of the mall stays as a grocery store, a multiplex, and some other things.

      • raxadian says:

        I think that technically a mall can be converted into an government building or a community center but yeah… Otherwise you have to destroy it.

      • Swamp Creature says:

        In the Swamp I see churches who’s attendance has plunged to zero due to Covid converted to residential condos. Now if they can do this conversion with church property, then doing it with an office building should be a piece of cake. We even appraised one the other day.

        • Kenn says:

          Churches, especially older ones, are much easier to convert than malls or office buildings. First, they are smaller, which means that all apartments get windows. Most have basements, which makes running plumbing and electrical easy, and much of the church building is already sectioned off into small classrooms and offices which are similar to residential size rooms.

      • josap says:

        The same scenario is playing out for several large malls in Phx Metro area.

        A lot of apartments, some retail, some office. Banks, small hotels. The customers are provided to retail and employment because they live/work there as well.

      • Mike G says:

        The amount of plumbing and interior walls for apartments or hotel rooms is vastly different than for malls, which usually means it is more economical to bulldoze them and build fresh.
        Conversion to open-plan offices is easier.

      • NBay says:

        There are plenty of creative architects/structural engrs out there, but regardless of any of the “how” aspects, the question seems to be “when” a developer can own it for a workable “cost basis” for his own plans… seems, maybe I’m wrong.
        Are there any ballpark figures for when all that financial haircutting dust finally settles, or is every situation totally different and also dependent on the time it takes to “practice” law?
        Point being cheap housing is obviously needed yesterday.

  11. 2banana says:

    Until other businesses eat your lunch by being more efficient and lower cost than the pajamas, wake at 10 and be paid SF wages while living in Tucson workplace model.

    “People aren’t going to be expected to come back to the office five days, week every week. We think that is really not how most workplaces in the 21st century are going to operate,” he said.

  12. Scott says:

    Geniuses must have made those decisions using “sophisticated” modeling techniques lol

  13. Nicko2 says:

    In a world of WORK FROM HOME, with Zoom, HD Cameras, cheap studio lighting, multiple monitor setups with high speed fiber….why do we need permanent physical offices any more? If the need arises for a physical meeting, do it at the coffee shop, or rent an executive boardroom at the local Marriott for a couple hours.

    At the very least, most corporate HQs can downsize to hot-desks and a couple boardrooms.

    • IanCad says:

      And, in the meantime; London office construction has boomed by 20%. (According to Architects’ Journal)
      I call it utter madness; but then, I’m a poor man with little understanding of the ways of commerce.

      • Anthony A. says:

        There building it out like crazy here in Houston betting on the “come”….

        • MiTurn says:

          It seems to be working…

        • Anthony A. says:

          MITurn: The Houston office rents are cheap in comparison to SF and other big cities. Plus, Houston’s energy corridors have been relocated out of downtown (for the most part) to The Woodlands (north side) and the west side of Houston.

          There is still a lot of empty office space (being built and old) though. Some new stuff is committed when finally built. I mentioned the numbers in a previous article by Wolf.

    • Ron says:

      Berkshire is a perfect example of how to manage a business 30 people running a 110 billion dollar companies but he is honest won’t work in greed and corruption environment

    • Swamp Creature says:

      Sounds like a good Idea. I used to meet customers in the morning at McDonalds to close deals. I liked the cost of my rent.


    • Chris Herbert says:

      I believe the work from anywhere is not productive. You cannot replace face to face work, in my opinion. Too much is lost in the vacuum.

  14. gerry says:

    From Facebook to AirBnb, almost all these Internet-connected companies didn’t exist 20 years. Brin and Page’s Google was a pre-2000 business but I have read that they were ready to bail out for chump change, a few million dollars, around 1996. What happens to many of these companies if it turns out that they falsified the value of their online ads? It is all a house of cards.

  15. Carlos Strange says:

    There is no “flight to quality” where 650 Townsend is concerned. Is always a building that nobody wants to occupy, and only leases during hyperinflated markets.

    • TinyTim says:

      Kind of looks and reminds me of a cruise ship from the pics you posted.

      • Wolf Richter says:

        Yes, it does. It also reminds me of the Maritime Museum down by the water (Aquatic Park), built in the 30s, to look like the top of a steamer at the time.

    • tfourier says:

      That building is not that cool inside.

      I worked there in early 1998 when the top two floors were empty and dark and the bottom three floors less than half full. Apart from CNet TV in the atrium the building was dead. Used to walk circuits on the top floor corridors (which were dark) when it was raining outside. Last time I was in there was after Zynga moved in. More people but still a big dead space.

      All the flashy places are sterile and dysfunctional to work in. Not happy places. All the best spaces to work in tend to be slightly grubby cubicle spaces with a very lived in look.

      Then there was Verity in the 1990’s. Straight out of dystopian cult movie..

      With high growth high tech companies there is no happy medium. Either not enough space or too much. A good company always has too much because too little makes for very unhappy campers. There is a lot to be said for working in an almost empty annex to the main buildings. Much more productive. The empty space usually fills up soon enough.

      • Cal says:

        That’s the old Yellow Cab lot, by the way. The original was on Turk by Leavenworth.

      • NBay says:

        “dystopian movie”.
        Exactly. Before the whole place is partially demolished and repurposed, that big lobby could be used for a great Hollywood shoot-out scene.

    • Carlos Strange says:

      Was not built by Zynga although they occupied and owned it for a while. They reluctantly moved there – wanted nothing to do with this building. Was also a darling building during the dot com boom and emptied out again during the bust.

  16. A says:

    Well it’s a good thing individuals aren’t hoarding 2nd homes or even taking out multiple mortgages to rent the property out.

    After all, there’s no way a historic shortage of houses could all of a sudden turn into a glut, could it?

    • Wolf Richter says:

      Coming to a neighborhood near you this fall?

      • Jacob Hunt says:

        Wolf, as Heinz says bellow, this has to end badly, but is it business as usual until rates rise?
        Over in Australia we have exactly the same thing happening… regional areas are on fire because everyone is leaving the cities. Yet I haven’t found an article that talks about how city prices are rising at the same time people are leaving, occupancy rates are sinking, and rents doing the same.
        So cities are full of empty residential and commercial buildings, yet prices are rising???
        The last decade has been hard to take, but this latest trick has me baffled. This is obviously the crank up boom before it all blows, but I’d love to hear your take on how it all unravels. I know, your more about facts than speculation, but any chance you can be the first person I’ve read even broach this crazy phenomenon.
        After years of watching people pile into housing while the economy deteriorates, I now know the masses won’t finally get it. Is it just as simple as it looks, and what I thought was coming 8 years ago? Inflation is here, rates will have to rise (eventually), and the second they do, it all comes apart at the seems?
        Anyone, would love to hear you take

    • Heinz says:

      “After all, there’s no way a historic shortage of houses could all of a sudden turn into a glut, could it?”

      That’s a topic for a whole different discussion. But I’m sure Wolf’s reporting will be cutting edge as real estate lurches towards a big correction– it is baked in the cake and almost ready to stick a fork in it.

      I wish no Schadenfreude on clueless folks that got all hot and bothered with FOMO and are diving head first in housing market, but I see a lot of anguish and worry coming eventually.

      As usual and always, it is the naive little sheep that get sheared in bubble market corrections.

      Truth is, Wall Street and elites always have the monster luxury yachts, while the plebes’ yachts are little dinghys with big holes in them.

    • yxd0018 says:

      No way with such lending standard and easy money for the corp

    • c1ue says:

      I personally highly doubt it.
      Thanks to Proposition 13 – the carrying costs for a home that’s been owned for 15 years or more is literally peanuts.
      The extremely low San Francisco city turnover rate means there just haven’t been that many houses changing hangs in the past 15 years.

  17. Candyman says:

    How Wil this play out when the master lease expires? I may be able to sublet from Airbnb, for 5 years (time left in their lease) at a great discount from landlord asking rent. When that expires, what if i want to renew with the landlord, where will the square foot rent be? It may be higher, substantially from the current agreement. Also, what happens if Airbnb goes bust in the mean time? Time to get a great real estate lawyer!

  18. David Hall says:

    Some members of Congress slept in their offices while in Washington, D.C. They may have legal residences in their constituencies.

    For a year there was a shift towards having an office in a residence as people fled office buildings with elevators.

    Missouri state workers returned to their offices Monday.

  19. Rowen says:

    Too bad we can’t covert Class A office space to something useful, like a saw mill or chip foundry. The invisible hand ain’t doing its job in efficiently allocating resources…

  20. clickityclack says:

    @Wolf & wolfpack
    Another WTF chart is the IYR (REIT index)
    Given all the negative stats for commercial space in San Fran and across the country, do you have any ideas for why the IYR is up almost 20% since March and back at all time highs?

    The holdings include a bit of residential which is performing very well, but ~70% or so is commercial REITs which seem to be getting killed.

    Maybe all these companies pre-paying to get out of their leases makes it look like the REITs are profitable right now?


    • Wolf Richter says:


      The companies named here are not defaulting on their leases. They’re paying their landlords while trying to recuperate some of their costs by subleasing the space. Others are negotiating with their landlord some kind of exit deal.

      But WeWork has individual office entities set up for each office that it leases, and those entities are defaulting on their leases all over the place.

      Landlords get in trouble when there are not enough tenants that pay rent, mostly when the lease is up and companies move out to nicer digs, and there are no replacements. This takes time to wash out. It has been happening in Houston, which has been in worse shape than San Francisco — and since 2015 due to the oil bust.

    • Old School says:

      I built, held and completely sold out of an outlet mall REIT position during last 18 months. It’s a slightly declining business.

      People are paying about the same for the stock after the year of covid even though operating free cash flow is guided down by 25% from prior year. I think it’s mainly the market assessing how all the money printing and stimulus will play out in the short term.

  21. Danno says:

    I’m glad I was such a visionary running my consulting business for 25 years from my kitchen table, using the library for printing and wifi, meeting clients in their office or a nearby coffee shop, starting my business with only 100 business cards and a typewriter for invoices.

    • Crazy Chester says:

      Some 10 years ago, while still in the days of the ‘original signature’ limiting factor, after open heart surgery and its resulting months of denial about what to do with the cute little office I owned and the 3.5 employees who needed me to bring in business and perhaps from the malnourished perception resulting from a new diet of never eating anything which once had a ‘face’ (there is a cookbook!), I came to know an ultimate truth: everybody, and I do literally mean everybody, knows where the closest McDonald’s is located. And at the right price it was simply the most wonderful meeting place one can imagine for Chp7 bankruptcy work.

      You go truly lean in the bankruptcy world and lots of things become very clear concerning what the future entails. And, oh, what a volume wave 2022 brings to ride! The only question will be whether to plow ahead or wait for the inevitable ‘student loan’ fix to the existing law.

      Today, even the ‘original signature’ has a technological fix. There is software for everything and I’m 6X faster handling 3X the volume which almost gives me enough time to read through the ‘Chicken Little’ WS comments section. Almost. I have to set time limits so I have time to step outside for fresh air and walk around a bit.

      So, in a way, I kind of miss the old days of a least one face to face meeting rather than a FaceTime image enlarged upon a large screen in which, I swear, I can see the pours in their faces as I take the worry out of their voices. So here’s to bad coffee, free WiFi, the odor of microwave bacon and the true pain of your clothes hamper smelling like old French Fries the next morning. Seems so 2010, doesn’t it?

      • NoPrep says:

        This comment is seriously some great, colorful and perceptive writing. I hope you are working on a novel or a screenplay.

  22. yxd0018 says:

    This post reminds me of many commercial RE posts on this site. But it seems corp has way more ways to extend life. I expects the same thing here for Airbnb.

  23. MCH says:

    There is a word that can be used for this: TRANSITORY.

    Or tranny for short. This situation with the office space glut is tranny.

    It will go back to normal soon. The funny thing though, with the boom and bust cycles, transitory is the norm for SF.

  24. Phoneix_Ikki says:

    Perhaps this would explain why Google came out with their return to work mandate then backtrack again. All those expensive commercial real estate have to be use somehow one way or another. There’s definitely a lot of hot air in the commercial RE market, especially worrisome consider the hidden danger in CMBS. There’s still a lot of hype up selling from insiders of the quick turnaround in Commercial RE. On the flip side to residential RE. Got this newsletter from a RE agent today, too good not to share it with the peeps here. There’s some real gem within and for laughs and giggles, here are some excerpts from it. Wonder if we are near the top to do more last hurray to comfort the lemmings with everything is going to be ok pillow talk.


    “Once again, housing is soaring upward with seemingly no end in sight. Buyers are tripping over each other, willing to pay
    tens of thousands of dollars above the asking price. Throw in the news of rising inflation and the potential of drastically
    higher mortgage rates, the madness must come to a screeching halt soon, right? Even though so many are anticipating
    and reporting that a housing crash is eminent, it simply is not going to occur, not now, not in the next 6-months, and not
    in the foreseeable future.

    The Great Recession was triggered by the housing market where anyone could purchase a home regardless of their
    true qualifications. Zero down payment loans, negative ARM’s, cash out refinancing, subprime lending, and fudged loan
    documents all contributed to the astonishing rise in values that inflated the housing bubble that ultimately collapsed in
    2007. The housing market crashed, and home values plunged.

    The Bottom Line: The housing market is NOT going to crash. The inventory is low, demand is high, market time is at all time
    lows, mortgage rates are at record low levels, buyers must qualify for mortgages, subprime and zero-down loans are
    not fueling housing, and homeowners have plenty of equity.”

    • yxd0018 says:

      How do you rebuttal these reasoning? Corp get free cash if they get into trouble. This time seems different.

    • Sir Eduard R. Dingleberry III says:

      Haaa! Whenever someone is trying to convince you of something this badly, you know the opposite is true.

      • Anthony says:

        Sir Eduard R. Dingleberry III

        Ha ha ha….

        I was thinking of some sort of war somewhere that might put up the price of petrol/gas to $20 a gallon….followed by a big increase in interest rates. It’s happened before, but of course, in this magic fairyland world, it could never happen again….. Now where did I put my bottle of 1970’s fairydust….???

    • SaltyGolden says:

      This argument is fascinating to me: “no more bad loans therefore no bubble”.

      How could one not fathom that there could be more than one source if unsustainable demand?

    • Heinz says:

      So, this time it really is different– the housing market will never correct, but instead continue red hot going straight up with no end in sight …

      Then I guess it is time to wade back into market, and overbid on that 1200 sq ft crap shack with no back yard that I have had my eye on. They are only asking $420K for it. I’ll offer $500K to be sure of nabbing that property.

    • Old School says:

      Bubble dynamics is interesting from what I have read on it. After they burst, the root cause can usually be identified pretty easily.

      Read something about why blow off tops usually occur. It strange to me that with all the computing power out there that timing of the bubble still seems to be mostly an intuition thing. Maybe it’s as simple as market is not balanced due to government policy having finger on the scale.

      • Heinz says:

        ” It strange to me that with all the computing power out there that timing of the bubble still seems to be mostly an intuition thing.”

        Bubble timing is beyond present-day computer algorithms. There are too many variables, and most importantly, human emotions (especially greed, fear, expectations, hope, and confidence) are too unpredictable to know which way the wind will blow and when.

        Maybe someday someone will invent the market equivalent of pre-crime capability of sci-fi movies. Until then, macroeconomics and markets are a dizzy roller coaster ride with a thrill a minute.

  25. marie says:

    Eventually all these companies that only survive from investor cash destruction will realize that remote work is not only efficient but can be extended one step further.
    Most airbnb employees that now work from home can be replaced by people that work from home… from somewhere cheaper, like the Philippines, with no benefits.
    It’s not like high tech cares about ethics.
    Why not? Isn’t that the plan?
    Isn’t that the logical extension of the process?
    And the rust belt process will become the tech belt process. With the same results.

    • Bruce A. Forbes says:

      You raise a good point Marie. If you don’t need to reside in a country to work in that country, then many immigration laws and restrictions (and taxes) become moot – don’t they?

    • LeClerc says:

      Actually, they can’t be replaced with offshore employees.

      AirBnB employs thousands of highly specialized hospitality industry A players. These people aren’t available in the Philippines, and can’t be easily sourced from low-cost areas.

      It’s easy to underestimate the complexity and sophistication of that company and others like it.

      • Old School says:

        Gunlach put up a chart showing if I remember correctly that tech employees 2% of workforce, provides 6% of GDP and is 36% of market cap. One can ponder that and try to figure out what next step is. One thing is for sure market cap growth of tech stocks to GDP will have to slow down. Can’t be 90%.

  26. Micheal Engel says:

    1) SF new regulation : bring your belonging and your homeless tent to the empty office buildings, in the zone.
    2) Free sex. Food and a liquor stores at street level.
    3) Popup vaccine center.
    4) Popup medical center.
    5) Entertainment center.
    6) Police precinct near by.
    7) Drug dealers will be arrested at the front desk.

    • Helen says:

      All of this is caused by decades of rank corruption and making money off it. A fine article to illustrate it:

      The city family is a Machiavellian tragedy
      As the FBI picks off his protégés, will Willie Brown’s luck run out?

      “…Mayor Lee famously referred to his fellow officials as “the city family,” a term used by Willie Brown for decades. But as the FBI picks off Brown’s protégés one by one, the normally talkative Brown is surprisingly quiet, particularly about the Kellys. He still writes his San Francisco Chronicle column, aptly titled “Willie’s World” (for which he is reportedly paid $1,000 a week), where he distances himself from city family members that he once helped up the ladder. For example, after Mohammed Nuru’s arrest Brown wrote “Nuru came to Public Works after I took office,” but in reality, Brown hired Nuru in 2000 as deputy director of operations under then-DPW boss Ed Lee…”

  27. Anthony says:

    One thing may happen(and I mean may) is that after all this washes out, the companies that can cut costs by “working from home” may see a boom in profits.

    Saying that, this is a very strange world where a so called “safe asset” can drop 30% or more, in half an hour

  28. RedRaider says:

    Airbnb uses only 1/2 it’s leased office space? Imagine WFH reduces used office space by 1/2. If there’s 4 times the office space than actually needed watch out below! And who knows what effect this will have on residential prices.

    The silver lining is Frisco once again becomes the Shangri-La that lots of people remember it to once have been.

  29. Island Teal says:

    Good article and comments. And then you have the visionary plan from HP to consolidate it’s printer businesses in a 1.5M sqft campus to be newly constructed across the river from PDX in Vancouver. Perhaps a few decades late. LOL LOL ??

    • Robert Hughes says:

      HP used to have printer plant in Vancouver, then gone, ditto printer people offices in different location, gone. Wasted many $$$. Now they want to start cycle over. Such a sad company.

      • NBay says:

        When I was taking a microprocessor course at SRJC, late ’86 or so, HP had a huge Network Analyzer (maybe more) plant on the hill where Fountaingrove more or less “started”.

        All the students and profs said HP meant “Holy Place”, and dreamed of going there….maybe even some Profs.

        Things change.

        • 91B20 1stCav (AUS) says:

          NBay-their employees were a sizable portion of our moto-shop’s clientele (along with those from the Valley plants along Piner and the later, short-lived Rohnert Park facility). A close, long-time amigo runs plant maintenance at the FG site now occupied by HP-spinoff-Agilent-spinoff-Keysight. He tells me despite all of the changes, they’re doing okay…

          may we all find a better day.

  30. Rumpled Bemused says:

    So, we have leaders in the tech industry whose company’s lose billions, while they make mistakes worth hundreds of millions, and they are still treated like royalty. Meanwhile, someone working in a bad job, where the pay still qualifies them for public assistance, will be threatened for extending their 10 minute break. Is there a guillotine manufacturer that I can invest in?

  31. CreditGB says:

    SalesForce hoarding office space? Isn’t SalesForce one of the leading remote worker tie in applications? Don’t they believe in the remote worker concept their system is designed to support?
    I don’t get it.

  32. Mira says:

    They all did it .. assuming endless rapid growth of everything …

    It’s what the business bible tells them
    It’s the promise ..
    “I can teach you to become rich, I did this & I did that & look at me now.” He swears to you sporting that bright toothpaste grin.
    & they do not know any better
    & they do not know how to stop & think it through to save their own lives.
    They are bewitched, bothered & bewildered & trapped in the throw of the spell.

    • Mira says:

      And there was a whole lot of shuffling to tax avoidance throughout this episode of .. the promise to come .. expectations I bet.

      • Mira says:

        There is a great Sinatra song ..
        Glad to be Unhappy Chris Botti features John Mayer Boston youtube.
        John Mayer does this so well ..

        Some people just love to be alive .. God bless them.

  33. Haggard Dog says:

    Why does WeWork structure their leases into holding companies so that they just collapse the holding company when they want to exit a lease

    But Airbnb Saleforce etc do not — and are on the hook for the loss?

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