Dropbox reached with $175 million real estate loss for the previous year as San Francisco office space sits vacant

February 21, 2023: Dropbox made splashy headlines in 2017 when the software company signed the most significant office lease ever in San Francisco, which secures 736,000 square feet more than 15 years in the city’s Mission Bay neighbourhood.

The combination of an intrexemely in 2020 led to a boom in remote things, followed by a decrease in the tech market in the previous year, turning that massive space into a fiscal albatross with an original commitment of a minimum of $836 million. In September, that number sat at $569 million.

In its fourth-quarter earnings statement on Thursday, Dropbox said it recorded an impairment of $162.5 million “as an outcome of adverse changes in the corporate real estate firm in the San Francisco Bay area.” Its real estate impairment for the year was $175.2 million. Although high, it is still much lesser than the $400 million hit the firm took at the end of 2020.

Of all the huge U.S. markets, San Francisco has been among the gradual to rebound from the Covid pandemic as its heavy reliance on the tech industry, which has maintained a hybrid workforce and, in similar cases, has gone fully remote.

Dropbox opted to go “first” in 2020, announcing in a blog post that “remote work will be the main experience for all employees and the day-to-day default for individual work.” That is coming down the firm’s need for office space and is pushing it to find tenants to sublease huge chunks of its headquarters.

While Dropbox can sublease pieces of its real estate to some biotechnology firms, there needs to be more demand for accounting for the company’s space. On Thursday, Tim Regan, Dropbox’s finance chief, said that the subleasing environment has become more complex than management had anticipated. The company is now assuming it will sublease space in San Francisco in the coming few years.

“We were comparatively faster to market with the subleasing plans, but the firm has deteriorated, with many firms decreasing their real estate footprint,” Regan stated.

“And there’s certainly been a surge in supply for real estate for sublease, pushing out our expected time to lease,” Regan said.

According to city figures, the office vacancy prices in the third quarter were up 24% in San Francisco, much over since at least 2007. Yelp was also putting its San Francisco headquarters up for lease in 2021. Salesforce, Airbnb, Uber and Zendesk are other companies that have taken real estate problems in the city.