Drew Houston, Dropbox Co-Founder and CEO.
Arun Nevader | CNBC
Dropbox mentioned Friday that it is agreed to return over one quarter of its San Francisco headquarters to the landlord as the commercial real estate market continues to soften following the Covid pandemic.
In a filing, Dropbox mentioned it agreed to give up to its landlord 165,244 sq. ft of house and pay $79 million in termination charges. Under the modification to its lease settlement, Dropbox will offload the house over time by means of the primary quarter of 2025.
Since going distant in the course of the pandemic three years in the past, Dropbox has been making an attempt to determine what to do with a lot of the 736,000 sq. ft of house in Mission Bay it leased in 2017, in what was the most important workplace lease within the metropolis’s historical past. The firm subleased closed to 134,000 sq. ft of house final 12 months to Vir Biotechnology, leaving it with simply over 604,000 sq. ft.
In addition, Dropbox took a $175.2 million impairment on the workplace final 12 months “as a end result of opposed adjustments” available in the market. That got here after taking a $400 million hit in 2020.
San Francisco’s workplace emptiness fee stood at 30% within the third quarter, the best stage since at the least 2007, in accordance to city data.
“As we have famous up to now, we have taken steps to de-cost our real estate portfolio as a end result of our transition to Virtual First, our working mannequin by which distant work is the first expertise for our staff, however the place we nonetheless come collectively for deliberate in-person gatherings,” an organization spokesperson instructed CNBC in an emailed assertion.
While the transfer offers a monetary profit to the cloud software program vendor, it indicators that demand for workplace house within the metropolis stays weak and suggests extra ache could also be forward for corporations that signed massive leases earlier than the pandemic, when enterprise funding and public traders have been fueling a tech increase. In addition to the distant work development, the tech trade 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 slicing its headcount by about 16%.
Dropbox’s 2017 lease for the model new headquarters was for 15 years. Private-equity agency KKR bought the property in 2021 from its unique developer, Kilroy Realty Corp., for over $1 billion.
“As a end result of the modification the corporate will keep away from future money funds associated to lease and customary space upkeep charges of $137 million and roughly $90 million, respectively, over the remaining 10 12 months lease time period,” Dropbox mentioned in Friday’s filing.
A brief stroll away from Dropbox, Uber has been making an attempt to sublease half of its headquarters. The San Francisco Chronicle reported final week that Microsoft-backed OpenAI is shut to taking house there.
Dropbox had tried working with its landlord to sublease house on the headquarters, however the real estate market deteriorated, finance chief Tim Regan, instructed analysts on a February earnings call.
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