In the return-to-office battle, it seems Meta may have accepted a heavy financial defeat after it surrendered one of its key locations for a nine-figure sum.
Facebook’s parent company has ended its lease on a central London location 18 years earlier than expected, giving notice to landlords British Land it would be vacating the eight-storey building at 1 Triton Square.
However, surrendering the space comes at a cost: an eye-watering £149 million ($181 million)—the equivalent of 7 years of rent.
Meta, like many other Big Tech names, has been pushing its staff back to three days a week in office. Those who don’t comply could either risk being fired or see the issue brought up in performance reviews.
However, the fact the Instagram owner is shutting one of its four major London locations could suggest the reduction from a pre-pandemic, five-day in-office norm, is too much of a change to justify the overheads.
Another reason could be that Meta doesn’t have the same number of staff it once did in order to fill the offices.
During the pandemic the company was among those who had a hiring spree, but as online activity began to slow as Covid dissipated, CEO Mark Zuckerberg announced mass layoffs.
In March, Facebook founder Zuckerberg announced plans to lay off 10,000 workers across the business, following a previous announcement in November that 11,000 jobs would be axed.
However, for employees still left standing at the company which also owns WhatsApp, there are luckily other London locations where they can secure a desk.
Meta still has three cites in the English capital, including its 400,000 sq ft office at King’s Cross which opened early last year. The state-of-the-art development spans two connected buildings, boasts a 4,000 sq ft rooftop garden and is one of the lowest embodied carbon buildings in the development.
The business also recently took on all the floors at its office building in Brock Street, near Euston train station.
Meta’s spending spree—particularly to get out of its lease at Triton Square—has stunned analysts.
“It is a staggering amount of money,” Matthew Saperia, analyst at Peel Hunt, told The Financial Times. “In my 20 years, I can’t think of a tenant paying [so much] to give back space they don’t occupy.”
Meta declined to comment when approached by Fortune.
While on the surface a $181 million payday might not sound bad for business, Meta’s surrender underlines a major issue facing commercial landlords in a hybrid working world: that space will need a new tenant.
In a business announcement, British Land said Meta’s move would lead to an earnings per share dilution of approximately 0.6 pence, but still remained “comfortable” with its full-year expectations for 2024.
Luckily for British Land, it managed to lease 1.2 million sq foot of space in the five months leading to August 2023, with a further 1.1 million sq foot under offer.
Its bottom line is buoyed by demand “[continuing] to gravitate to best in class space” as well as “better collection of historic COVID arrears than anticipated.”
British Land’s CEO Simon Carter added the landlord will now seek to adjust Triton Square’s reputation: “Meta’s surrender of our building at 1 Triton Square also enables us to accelerate our plans to reposition Regent’s Place as London’s premier Innovation and Life Sciences campus.”
Not all landlords will enjoy the same optimism.
Previously New York real estate boss Scott Rechler warned the only offices to survive in a hybrid-working world will be those in the best locations or with top amenities.
Unfortunately for landlords with lackluster portfolios, Rechler—the CEO of New York–based RXR—says the assets will become “obsolete.”
In the U.S. experts are warning that the challenge could end up being a $1.5 trillion headache.
The eye-watering sum is the amount of U.S. commercial real estate debt due for repayment before the end of 2025—and the billion-dollar defaults have already begun.