It’s kind of sobering. Reality has that effect, after a drunken binge.
So here are a few of the biggest names, but this is now happening all over the place.
Amazon is halting construction on five office towers in downtown Bellevue, Washington. In addition, it will not even start construction on a sixth tower in Bellevue.
Amazon told GeekWire that it wants to re-evaluate floorplans to see how they would need to change to accommodate remote work and the hybrid model of working from home some days and coming to the office on other days. Meaning that there will be fewer people to spend time in these offices, and it may need less office space, and those offices will need to be different.
Amazon, which has about 10,000 corporate and tech workers in Bellevue, said that it still intends to have 25,000 employees in the city. I guess, sometime in the future maybe. To be re-evaluated in due time.
In addition, Amazon is halting construction on its office tower in Nashville, Tennessee, where Amazon already has a tower. It told the Nashville Business Journal that it wants to re-evaluate floorplans with an eye on the hybrid model of remote work and office work.
Last week, it was reported that Amazon slashed the amount of office space it had planned on leasing at Hudson Yards, in Manhattan. This would be for additional space. It already has been leasing space at Hudson Yards since 2019.
In its Q1 earnings report, Amazon disclosed its first loss in many years and its weakest sales growth since dirt was young. During the earnings call, the CFO said that for its consumer business – so that’s the ecommerce side of what Amazon does – there was quote “excess capacity in the network that we need to grow into.” He said that many of the decisions to add capacity were made 18 to 24 months ago.
These decisions to build out capacity to meet the boom in sales have been made obsolete by reality, and they are being unwound as that boom has fizzled. And it’s time to cut costs and contain future expenditures.
In May, it emerged that Amazon will shed somewhere between 10 million square feet to 30 million square feet of excess warehouse space that it took on during the stimulus-fueled boom in online sales during the pandemic, but that it now figures it won’t need. It is leasing these warehouses and will try to sublease them to some other companies.
In late June, it emerged that Amazon has delayed or cancelled plans for 13 warehouses around the country.
Salesforce.com, the huge software company headquartered at the largest office tower in San Francisco, the Salesforce Tower, has put half its office space on the market as sublease. That’s over 400,000 square feet of office space that Salesforce has put on the market. Most of it will be available August 1st, so essentially now. The rest will be available December 1st.
That’s kind of a stunner: that a company had twice as much office space at its headquarters than it now thinks it needs in the future.
In an internal memo, Salesforce said that it would slow hiring, cut some roles, and put a hiring freeze on some areas. Unlike a slew of other tech companies, it has not yet announced outright layoffs.
So this was in July, and this is not yet included in the vast glut of vacant office space in San Francisco as of the end of the second quarter. So even without it, at the end of June, the total office vacancy rate in San Francisco was already 26%, which is a huge glut of office space.
In 2018 still, San Francisco had the hottest office market in the US, and “office shortage” was the term being bandied about by the industry.
There are major office markets in the US that have even bigger gluts of office space, including Dallas and Houston, were vacancy rates are over 30%, which is catastrophic – especially now when office demand is declining. No one is going to, as they say, “grow into” this massive amount of vacant office space.
Last week it emerged that Facebook’s parent Meta – which shifted to flexible work and allows most of its employees to work from home – cancelled plans to take the additional 300,000 square feet of office space at an office building near Astor Place in Manhattan, where it already occupies space. And it halted plans to build out its new offices at Hudson Yards in order to evaluate what to do with it.
CEO Mark Zuckerberg issued a hiring freeze for some roles and warned employees of “serious times” and a big downturn.
It seems Meta’s real-estate department only belatedly got the memo, and they kept adding new space during the pandemic, even after the company had switched to permanent remote work, and now they’re scrambling to figure out what to do with all this unused office space that was designed for the company to grow into, but that, it turns out, it will never grow into.
Delivery startup Gopuff, which had been on a huge binge of hiring and footprint expansion, is now planning to close 76 warehouses in the US, which represent about 12% of its network, according to a memo to investors, seen by Bloomberg.
The memo also said that Gopuff would lay off about 10% of its workforce in the US, or about 1,500 corporate and warehouse employees, after having already laid off 3% of its workforce in March, when it also scuttled its plans for an IPO because the stock market had turned ugly for startup companies, and had already crushed many high-flyer stocks by 80% or 90%.
Hiring freezes and layoffs are now nearly daily in the news. These are mostly in office jobs, not production jobs in factories.
Tesla made that clear: It would be laying off people, but it would still be hiring factory workers. Over the past few weeks since Musk’s brash announcement of a 10% cut in the non-factory workforce, which has since been walked back somewhat, Tesla has actually started laying people off in waves. Most of them were office workers, but reportedly this included some workers that delivered vehicles and some sales staff.
Also this month, Tesla laid off a couple of hundred people at its San Mateo office, in Silicon Valley, and is shutting down the entire office.
Alphabet’s CEO said in an email to employees that Google would slow hiring for the rest of the year due to “a potential economic recession.” This could include outright staff reductions.
Earlier this month, Microsoft said that it laid off some people and eliminated some roles in a variety of groups. It said, “Like all companies, we evaluate our business priorities on a regular basis, and make structural adjustments accordingly.” In May, it had already slowed hiring in its Windows and Office groups.
Apple wants to slow hiring in 2023 on some teams, according to Bloomberg, citing sources.
Vimeo announced that it would be laying off 6% of its staff, after having already slowed hiring. Netflix, Twitter, Substack, and many others have announced layoffs. They all had gone on huge hiring binges.
Rivian, the EV maker that is now actually producing and selling electric pickup trucks, said that it plans to rethink some operations and trim jobs, but not at its factory. It was reported, based on sources, that Rivian planned to cut up to 5% of its non-manufacturing jobs.
These are companies that have been on huge hiring binges, trying to grab people and poach people from other companies, and they expected that they would somehow need those people, and since there was this huge labor shortage, they would have to make extra efforts to try to grab workers, because if you waited too long, someone else would grab them, or whatever.
They were reacting to the perceived shortages in a typical human way: They tried to hoard employees, like people hoarded toilet paper when the word “shortage” started circulating, and so these companies made the labor shortages much worse, and they contributed to this immense overhang of job openings.
But now there is a sense of reality returning, and they’re taking down some of those job openings, and they’re looking at places where this hiring binge might have led to overstaffing, and they’re looking at their future office needs, and they’re discovering that their real estate departments went haywire, and that there is no way in heck they will ever grow into this office space, but that they would more likely need a whole lot less.
Other industries aren’t so lucky. They’ve gotten hit hard. For example, the mortgage lenders are now getting slammed by higher mortgage rates. Mortgage refinancing, which was a big and profitable part of the business of mortgage lenders, well, that collapsed when mortgage rates spiked because people aren’t going to refinance a 3% mortgage with a 6% mortgage. And that started late last year.
Every major mortgage lender has started laying off people, many thousands of people, including the biggest such as Rocket Mortgage, which includes the former Quicken Loans, Lending Tree, Loan Depot, Wells Fargo, PennyMac, and many others.
And the crypto platforms fell on their own sword, namely the combination of leverage, scams, lies, and inter-connections, borrowing from each other and lending to each other to gamble on cryptos. And when cryptos plunged, several of these companies collapsed and froze deposits of their customers and some filed for bankruptcy. And throughout the crypto and blockchain space, there have been waves of layoffs.
There are gobs of startup companies that got funded by investors, and those companies went on a hiring binge while burning large amounts of cash, and now investors are getting skittish, and those startups are laying off people to keep going for a while longer, hoping that new investors will materialize by then and fund their cash-burn before they run out of cash to burn.
And there are companies that went public via IPO or via merger with a SPAC that are losing a running ton of money, and that have no visible path to profitability, and they’re laying off people because they have to, and some of them have already filed for bankruptcy in June and July, and others will this year and next year.
What all these companies had in common – from Amazon on down to the startup – is that they perceived a shortage of office space and a shortage of warehouse space, and they tried to grab what they could, in the hopes of somehow growing into this space. And they all perceived a labor shortage, and they grabbed workers however they could.
But now, that they’re coming to grips with reality, they’re seeing that they’ll need neither all that space nor all these workers.
These companies were intoxicated by the trillions of dollars in stimulus money for consumers, companies, and state and local governments, and by the money-printing and the interest rate repression, and by the huge bubble in asset prices, including the ridiculous bubble in stock prices that made everything possible, including their models of endless explosive-growth.
Now all that is over. Money printing has turned into quantitative tightening. Interest rate repression has turned into rate hikes. The stock market bubble is deflating. Cryptos have imploded. CPI inflation is over 9%. There is suddenly a huge massive glut of office space that no one knows what to do with, and lots of warehouse space is coming on the market, and the equations of explosive growth turned out to have been mind games.
We still haven’t seen the mass-layoffs that we see during a real recession, where big companies each laid off tens of thousands of people, and where weekly claims for unemployment insurance suddenly spiked. These weekly unemployment claims have risen, but just a little, and from historic lows, and they remain historically low.
What we’re seeing now is a recognition that many of the prior assumptions by these companies of red-hot growth were based on distortions associated with years of money printing and interest rate repression which caused stock prices to skyrocket no matter what, and that excused everything. For startups, it meant that those skyrocketing stock prices pumped cash to them to burn. And now there’s the recognition that this binge is over.
What we’re seeing is a sense of reality returning to the business world. And it’s kind of sobering. Reality has that effect, after a drunken binge.
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