Dropbox hit with $175 million real estate loss for 2022 as San Francisco office space sits empty

Dropbox made splashy headlines successful 2017, erstwhile the bundle institution signed the biggest bureau lease ever successful San Francisco, securing 736,000 quadrate feet implicit 15 years successful the city's Mission Bay neighborhood.

The operation of a planetary pandemic successful 2020, which led to a roar successful distant work, followed by a downturn successful the tech marketplace past twelvemonth has turned that monolithic abstraction into a fiscal albatross with an archetypal minimum committedness of $836 million. As of September, that fig sat astatine $569 million.

Dropbox said successful its fourth-quarter earnings connection connected Thursday that it recorded an impairment successful the play of $162.5 cardinal "as a effect of adverse changes successful the firm existent property marketplace successful the San Francisco Bay area." Its full existent property impairment for the twelvemonth was $175.2 million, which is inactive good beneath the $400 cardinal hit the institution took successful precocious 2020.

Of each the large U.S. markets, San Francisco has been among the slowest to rebound from the Covid pandemic due to the fact that of its dense reliance connected the tech industry, which has mostly maintained a hybrid workforce and, successful immoderate cases, has gone afloat remote.

Dropbox opted to spell "virtual first" successful 2020, announcing successful a blog post that "remote enactment (outside an office) volition beryllium the superior acquisition for each employees and the day-to-day default for idiosyncratic work." That reduced the company's request for bureau abstraction and pushed it to find tenants to sublease important chunks of its headquarters.

While Dropbox was capable to sublease pieces of its existent property to immoderate biotechnology companies, determination isn't capable request to relationship for each of the company's bare space. Tim Regan, Dropbox's concern chief, said connected Thursday that the subleasing situation has go much hard than absorption had anticipated, and the institution is nary longer assuming it volition sublease further abstraction successful San Francisco successful the adjacent fewer years.

"We were comparatively speedy to marketplace with our subleasing plans, but the marketplace has deteriorated, with galore companies reducing their existent property footprint," Regan said. "And there's surely been an summation successful proviso for existent property for sublease, which has pushed retired our anticipated clip to lease."

The bureau vacancy complaint successful the 3rd 4th was 24% successful San Francisco, higher than it's been since astatine slightest 2007, according to city figures. Salesforce, Airbnb, Uber and Zendesk are among different companies that person taken existent property impairments successful the city. Yelp enactment its San Francisco office up for lease successful 2021.

Dropbox executives had expected to sublease the company's San Francisco spot successful the mediate of 2023. They've pushed that people backmost 2 years, and lowered the rates the institution expects to receive.

"We've surely been active, and we proceed to beryllium progressive successful partnering with our landlord successful searching for subleases," Regan said. "But astatine this constituent successful time, this is our revised assumption, conscionable fixed what were facing astatine this moment."

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