PacBiz Times: As working from home becomes the new norm, big companies look to sublease surplus space

The COVID-19 pandemic brought home the fact that for many companies, it’s viable to have a workforce that works almost entirely from home, and that’s prompted some tough decisions about what those companies should do with their office space.

The rise in remote work triggered by the pandemic is having an increasingly large effect on office leasing in the South Coast of Santa Barbara County — the area including Goleta, Santa Barbara and Carpinteria — according to Hayes Commercial Group’s second quarter South Coast market report.
Properties that formerly housed companies like Appfolio, Procore, Yardi and Invoca are among the significant spaces available for sublease as of Aug. 30.

That doesn’t mean those companies want to leave the region, but it often means they are changing their priorities.

Procore is one example. The company plans to maintain its main office in Carpinteria, but it also expanded to multiple adjacent buildings over the years and is now subleasing some of those spaces.

Invoca, based in downtown Santa Barbara, has also reduced its office space as more of its employees work from home.

“Talented people live everywhere, and hiring talent from around the world brings the best and brightest people to Invoca,” Sarah Elizabeth Schmidt, an employee engagement manager at Invoca, told the Business Times via email. “A dispersed workforce presents a new opportunity to evolve how we build culture and community for our 400+ employees.”

In San Luis Obispo, Mindbody has been reducing office space since 2020.

The company has decided to give its team the option to work remotely, and over the past year, it has chosen to sublease or not renew leases for offices where employees prefer remote work or have relocated to other parts of the country, Meisha Sherman, Mindbody’s chief people officer, told the Business Times via email.

Some companies, despite having a hybrid model, have decided to double down on office space. The Trade Desk, an advertising technology firm based in Ventura, has more than 2,500 employees around the world. It recently opened an office in Toronto and plans to lease more office space in Melbourne, Australia and other locations.

“We are a high-growth company, so we are constantly evaluating where we need to expand our office footprint to meet the growing needs of our clients, and attract top technical talent. We will continue to lease more space as we continue to scale,” Naseem Tuffaha, chief growth officer at The Trade Desk, told the Business Times via email.

The Trade Desk has a hybrid work model and plans to keep its existing space in downtown Ventura, she said.

The Hayes report found that a significant proportion of South Coast office space is “creative” space leased by tech and bioscience tenants. The employees are typically younger and comfortable working virtually any place they can use a laptop.

At least three large tech firms are offering creative office spaces for sublease, likely a bellwether for future increases in office vacancy, Hayes said in its report.

Since the pandemic began in March 2020, tech and bioscience companies have discovered many of their employees, regardless of health considerations, prefer working largely remotely, and that desire is not temporary, Hayes said.

Remote working is having a profound impact on companies operating in and around Santa Barbara, according to Liam Murphy, a partner with Hayes.

“The amount of that impact and intensity of impact depends on the industry that they’re in,” he said.

The trend is strongest in Carpinteria and Goleta, both home to large tech employers. Roughly 35% of the available office space in both Goleta and Carpinteria is available for sublease, according to Hayes.

“That’s largely indicative of the tech companies that are saying, ‘We’re still going to run our business here, but we don’t have nearly the same amount of square footage because when we have our people here, it might be three days a week instead of five,’” Murphy said.

About 10% of the office space in Santa Barbara is currently available for sublease, “which is slightly higher than normal, but not a major change from historic norms,” Murphy said.

There are also “shadow vacancies” with essentially empty space that is not formally available, according to Murphy. Examples include space at technology firms like Honey Science Corp., Amazon or LinkedIn, Murphy said.

Hayes reported most professional services tenants — including in the legal, financial, engineering and real estate sectors — are largely back in their offices and using most or all of their space.

Murphy advised Bartlett, Pringle & Wolf and helped the CPA firm negotiate a lease renewal for the entirety of a 15,503-square-foot office in downtown Santa Barbara. The company expects to keep it full and reconfigure the layout to make room for more employees, Murphy said.

American Riviera Bank expanded its administrative offices with a 9,990-square-foot lease in Santa Barbara, and software company ShipHawk expanded its presence in downtown Santa Barbara by leasing a 12,320-square-foot property.

Robert Half, a global human resource consulting firm with locations in Santa Barbara and Ventura counties, recently released surveys that looked at remote work from a worker and employer perspective.

The research found that 4 in 10 United States workers are considering a job change in the second half of 2022. The top factors for making a move include remote work options and more pay.

“People have gotten used to being effective working from home and managing their day in a way that they have some flexibility,” said Alexandra Von Tiergarten, the senior regional vice president for global talent solutions and business consulting firm at Robert Half. “That has been hard for the average worker to want to let go.”

Nearly half of U.S. companies plan to add staff in the second half of 2022. Top hiring challenges and retention strategies include factors related to remote work, according to the Robert Half survey. And job candidates in many industries want remote options.

“We’re seeing it every day in all of our placements nationwide and in every market,” Von Tiergarten said. “They see it as something they were given during this period and if they performed well at their job, they’re questioning why the employer would want them to come into the office.”