Elon Musk May Be Late On His San Francisco Rent, But The City Has Bigger Issues With Its Office Space
Elon Musk’s $44 billion takeover of Twitter Inc. last year hasn’t been a smooth ride, with employee turnover and social media sniping.
And now Musk has apparently stopped paying rent at the company’s San Francisco headquarters and British offices. The San Francisco building owner is suing Twitter, but being late on rent is the least of the company’s office space issues.
According to West Coast independent commercial real estate giant Kidder Direct, office vacancy in San Francisco has risen to 18.4%, the highest since the 1990s. As a point of reference, the office vacancy rate in the city before the pandemic was 5%.
Unlike U.S. cities such as New York, San Francisco still suffers from pandemic-induced remote work habits.
“Most companies here are still encouraging people to work remotely, and San Francisco just hasn’t seen the same pullback of employees to the office,” said Anthemos Georgiades, CEO of real estate platform Zumper, which has offices in the city.
San Francisco’s sublease vacancy also rose in the fourth quarter of 2022 and is now over 5%. The bigger issue is the number of tech companies located in the San Francisco area, including Silicon Valley to the south. Technology companies, more than most other types of businesses, are having a tough time bringing employees back to the office.
A case in point is Meta Platforms Inc. (NASDAQ: META), which broke its lease in Mountain View late in 2022 and said it was building a “best-in-class remote work experience.” Meta then moved 200 content moderators to its San Francisco East Bay location in Fremont. The company then laid off all 200 of the moderators who moved.
Meanwhile, a CBRE Group Inc. (NYSE: CBRE) study figures showed an even larger office space vacancy of 27.6% in the city and suburbs, with nearly half of all office spaces vacant in San Francisco submarkets like West SoMa and Yerba Buena, known for their art galleries and museums. Mission Bay is the most in-demand market in the city, but it still has nearly 25% of all office space available.
Real estate investment company Shorenstein and its partner JPMorgan Chase & Co. (NYSE: JPM) are suing Twitter for back rent and are trying to force Musk to come up with an additional security deposit of $10 million. The suit claims Twitter is required to do so under the terms of its lease if it undergoes a transfer of control.
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