Drew Houston, Dropbox Co-Founder and CEO.
Arun Nevader | CNBC
Dropbox said Friday that it’s agreed to return over one quarter of its San Francisco headquarters to the owner because the industrial real estate market continues to melt following the Covid pandemic.
In a filing, Dropbox said it agreed to give up to its landlord 165,244 square feet of space and pay $79 million in termination fees. Under the amendment to its lease agreement, Dropbox will offload the space over time through the primary quarter of 2025.
Since going distant throughout the pandemic three years ago, Dropbox has been attempting to work out what to do with much of the 736,000 square feet of space in Mission Bay it leased in 2017, in what was the most important office lease in town’s history. The corporate subleased closed to 134,000 square feet of space last 12 months to Vir Biotechnology, leaving it with just over 604,000 square feet.
As well as, Dropbox took a $175.2 million impairment on the office last 12 months “because of this of adversarial changes” available in the market. That got here after taking a $400 million hit in 2020.
San Francisco’s office emptiness rate stood at 30% within the third quarter, the very best level since not less than 2007, based on city data.
“As we have noted up to now, we have taken steps to de-cost our real estate portfolio because of this of our transition to Virtual First, our operating model by which distant work is the first experience for our employees, but where we still come together for planned in-person gatherings,” an organization spokesperson told CNBC in an emailed statement.
While the move provides a financial profit to the cloud software vendor, it signals that demand for office space in town stays weak and suggests more pain could also be ahead for firms that signed big leases before the pandemic, when enterprise funding and public investors were fueling a tech boom. Along with the distant work trend, the tech industry has been in downsizing mode since early 2022, with industrywide layoffs.
Drew Houston, Dropbox’s co-founder and CEO, announced in April that the corporate was cutting its headcount by about 16%.
Dropbox’s 2017 lease for the brand latest headquarters was for 15 years. Private-equity firm KKR bought the property in 2021 from its original developer, Kilroy Realty Corp., for over $1 billion.
“In consequence of the amendment the corporate will avoid future money payments related to rent and customary area maintenance fees of $137 million and roughly $90 million, respectively, over the remaining 10 12 months lease term,” Dropbox said in Friday’s filing.
A brief walk away from Dropbox, Uber has been attempting to sublease a part of its headquarters. The San Francisco Chronicle reported last week that Microsoft-backed OpenAI is near taking space there.
Dropbox had tried working with its landlord to sublease space on the headquarters, but the true estate market deteriorated, finance chief Tim Regan, told analysts on a February earnings call.
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