The COVID-19 pandemic has left many individuals and companies with no choice but to work remotely. The recent spike in telework has raised questions about the future of commercial real estate, especially office buildings, and CRE companies have scaled back on property transactions because of all of the uncertainty surrounding the industry.
There’s one corner of the world that the pandemic has not been scared off when it comes to CRE purchases however—big tech. Five of the largest technology companies in the United States, Amazon, Apple, Alphabet (Google’s parent company), Facebook and Microsoft occupy approximately 589 million square feet of real estate across the U.S., The Wall Street Journal reports via data from CoStar Group.
Why big tech companies are embracing CRE during COVID-19
These technology companies’ desire to acquire CRE properties while many office buildings remain vacant goes against the current trend. There are several reasons why big tech hasn’t shied away from CRE, however. First, they can afford to take the risk. The companies have significant cash reserves, so it won’t hurt them as much financially if the buildings aren’t occupied right away. Plus, tech companies have been acquiring these properties at somewhat of a discounted rate because some current owners can’t afford to hold on to them during the pandemic.
Secondly, tech companies need a lot of the space that they’re acquiring. A number of the properties are being used as warehouse space, data centers and additional office space. Even though a lot of these major tech companies are letting their employees work remotely now, they plan to have them return to their offices at some point. As quickly as their workforces grow, there’s always going to be a need for more office space.
“We believe that post-pandemic we will ultimately return to doing a majority of our work in the office,” Amazon Vice President of Global Real Estate and Facilities John Schoettler told The Wall Street Journal. “We believe that much of the best work that we do is done in the office where employees can come together, work together to solve problems and be collaborative.”
Additionally, technology companies have embraced purchasing properties rather than leasing because they don’t have to deal with landlords. They also benefit financially as the property value grows, which is almost a certainty because other businesses want to be near these companies’ buildings. Their employees want to live in close proximity of the properties, too.
“Technology tenants tend to create ecosystems, just like financial services tenants did when they dominated skylines around the city,” Michael Turner, president of Oxford Properties Group told The Wall Street Journal.
“This is maybe the best opportunity that ever existed in the real-estate industry,” said Roy March, chief executive of real-estate investment bank Eastdil Secured LLC. “I don’t think we’ve ever had this kind of demand that’s being driven out of a sector since the invention of the internal combustion engine.”
What big tech’s embrace of CRE means for the industry
Companies like Facebook and Amazon have plenty of money to spend on CRE, but that doesn’t mean they interested in losing it. If these big tech companies are willing to purchase properties that could remain empty for the foreseeable future, it means they’re confident that they will be occupied again at some point. That confidence should spark optimism for the traditional CRE owners who have been concerned about the telework surge that’s been going on the last several months. It’s likely only a matter of time before tenants are returning to their offices and people are shopping in-person at retail locations.
Joe Dyton can be reached at joed@fifthgenmedia.com.
