Silicon Valley’s move-fast-and-break-things mindset now extends to leases. 

Big Tech companies — some of the more reliable office building tenants— are reversing course by letting leases expire or subleasing space across major cities, leaving commercial landlords with empty square footage and growing losses, The Wall Street Journal reported. 

Downsizing

Everybody remembers the ghost towns that bustling cities like New York and San Francisco turned into after COVID-19 left streets, shops, restaurants, and office buildings empty for months on end. For companies that could make the transition, especially tech firms, employees easily switched to remote work. The hope was that those workers would eventually return to the office and downtowns would thrive. 

And while that happened to a degree — New York City’s return-to-office rate is at 80% of pre-pandemic levels thanks to its banking and finance sectors, Bloomberg reported — Big Tech is headed in the opposite direction. Amazon, Meta, Google, and more are seeing less need for office real estate as they hold on to remote work practices and decreased headcounts: 

• In the fourth quarter of last year, US tech companies were leasing roughly 7.4 million square feet of office space, the WSJ reported. That’s nearly double what the sector held a year earlier, but it’s still a dropoff from the 10.5 million square feet rented in 2021. That empty space is causing headaches for commercial real estate owners. As of December, offices accounted for 41% of the value of distressed commercial properties in the US, which stood at roughly $86 billion, MSCI reported. 
• Salesforce occupied 900 million square feet of office in San Francisco as of January, not even half of what it owned or leased a year earlier. Amazon paused construction on a new headquarters in Virginia after a massive round of layoffs. CoStar reported that once Meta’s lease at a building on Manhattan’s Broadway ends in June, it plans to give up 275,000 square feet of space.

The tech sector was plagued by layoffs last year. According to Layoffs.fyi, 2023 saw roughly 1,200 tech companies let go of about 263,000 employees. And 255 firms have already laid off 74,000 workers so far in 2024. 

What’s a Landlord to Do? The office space problem may lie less with the emergence of remote work and more with a glut of outdated buildings that no longer fit tenants’ needs. “A law firm in the 1980s required substantially more space in order to accommodate stenographers, law libraries, mailrooms and storage space for files,” investment firm Brookfield said. These days, all of that work is on a few hard drives. One option for ailing landlords is to turn office space into housing — NYC already has 55,300 units scheduled for conversion, according to RentCafe. Just remember to write your name on your lunch when you move in. 

The doctor will see you now — unless a hacker gets in the way.

Health insurance giant UnitedHealth Group was hit with a cyberattack in February, and the company finally revealed its full cost as part of its Q1 earnings report on Tuesday: somewhere in the realm of $872 million so far, which could climb to $1.6 billion by the end of the year. The figure was enough to push UnitedHealth to a loss in Q1, despite its revenue beating expectations.

Tall, Dark, and Ransom

The cyberattack hit UnitedHealth’s Change Healthcare division, which provides claims processing and payment systems to healthcare providers. It was a ransomware attack, with a cybercrime group known as both ALPHV and Black Cat claiming responsibility, although this hasn’t been independently verified. Ransomware attacks hold data and software systems hostage, encrypting them so the victim can’t access their systems unless they pay a ransom. Change hasn’t confirmed whether it paid a ransom, though a report from Wired suggested the company paid out $22 million.

If that amount is correct, it’s a drop in the ocean for UnitedHealth, representing about 2.5% of the cost it disclosed on Tuesday. The hack had a devastating effect on doctor’s offices, pharmacies, and hospitals. One doctor told The Wall Street Journal last month that his office was considering taking out a loan to cover payroll. 

The hack was undoubtedly one of the biggest cyberattack hits the sector has ever taken, and it’s also part of an alarming trend in targeting healthcare systems:

• According to cybersecurity analysis firm Security Intelligence, healthcare is the biggest target for online criminal groups, and last year the healthcare sector’s data breach costs were the highest of any industry. 
• IBM’s Cost of a Data Breach Report in 2023 found that while the overall average data breach clocked in at $4.45 million, the average stood at $10.93 million in healthcare.

Double Punch: The initial ransomware gang who broke into Change Healthcare’s systems aren’t the only cybercriminals UnitedHealth has to worry about. A second ransomware gang, known as RansomHub, appears to have its hands on UnitedHealth’s stolen data — which includes extremely sensitive patient medical records — and is threatening to publish it on Friday, Axios reported. That cybersecurity bill just keeps getting longer and longer…

The informal grouping of seven advanced economies known as the G7 has one clear standout in the eyes of the International Monetary Fund.

On Tuesday, the United Nations financial agency published its latest annual World Economic Outlook, projecting among other things that the US economy this year will grow twice as fast as any of its peers that comprise the G7. 

Double Trouble

Either because of or despite inflation, Americans just can’t stop spending. Commerce Department data on Monday showed that the value of retail sales in March increased by 0.7%, higher than most estimates. Meanwhile, Bureau of Labor Statistics data earlier this month showed that the US economy added more jobs in March than any other month in the past year. The figures align neatly with the IMF’s growth projections for the US this year of 2.7%. By comparison, Canada’s economy is expected to grow by 1.2%, the next highest of any G7 country.

Translation: The US economy is running pretty hot — hot enough to power overall global growth, the IMF says. Unless, of course, it runs too hot to tame inflation:

• The IMF also revised its inflation expectations for the US this year, from 2.4% to a slightly less rosy 2.9% — higher than the 2.4% projection for the eurozone. And while the IMF’s baseline expectation is still for the Fed to conduct three quarter-point cuts to interest rates this year, IMF chief economist Pierre-Olivier Gourinchas told the Financial Times that could change.
• The prospect of higher-for-longer rates is rippling through international markets. India’s rupee fell to a record low value against the dollar on Tuesday, while the Stoxx Europe 600 index fell 1.5%, its biggest single-day drop since last summer.

“The primary risk there is the extent to which central banks, particularly in the US […] may in fact not end up delivering the cuts,” Fabio Natalucci, deputy director of the IMF’s Monetary and Capital Markets Department, told Reuters.

Red All Over: The US isn’t the only country feeling its oats this week. On Tuesday, officials in Beijing announced China’s first-quarter GDP increased 5.3%, besting most expectations, and driven in part by strong export figures. But to the IMF, that’s a problem: Rising anxiety over cheap Chinese exported goods could bring tariffs and trade restrictions, possibly stifling global growth. Maybe China-based Temu shouldn’t have been so bold with all those Super Bowl ads.