Dropbox hands above 25% of San Francisco headquarters again to landlord

Drew Houston, Dropbox Co-Founder and CEO.

Arun Nevader | CNBC

Dropbox said Friday that it’s agreed to return more than one particular quarter of its San Francisco headquarters to the landlord as the commercial true estate current market continues to soften subsequent the Covid pandemic.

In a filing, Dropbox reported it agreed to surrender to its landlord 165,244 square feet of area and pay out $79 million in termination expenses. Beneath the amendment to its lease settlement, Dropbox will offload the space in excess of time through the initially quarter of 2025.

Since heading remote during the pandemic three several years ago, Dropbox has been striving to figure out what to do with substantially of the 736,000 sq. toes of house in Mission Bay it leased in 2017, in what was the premier business lease in the city’s record. The firm subleased shut to 134,000 sq. feet of house final year to Vir Biotechnology, leaving it with just around 604,000 square toes.

In addition, Dropbox took a $175.2 million impairment on the business very last 12 months “as a consequence of adverse improvements” in the industry. That arrived following taking a $400 million hit in 2020.

San Francisco’s business emptiness level stood at 30% in the third quarter, the maximum amount given that at minimum 2007, according to town details.

“As we’ve mentioned in the earlier, we have taken methods to de-value our real estate portfolio as a outcome of our changeover to Virtual 1st, our functioning model in which remote operate is the key knowledge for our personnel, but wherever we continue to occur collectively for planned in-man or woman gatherings,” a organization spokesperson told CNBC in an emailed assertion.

Even though the move offers a economical benefit to the cloud software seller, it signals that need for place of work house in the city stays weak and indicates extra suffering may well be in advance for firms that signed significant leases right before the pandemic, when venture funding and public traders were fueling a tech boom. In addition to the remote perform trend, the tech sector has been in downsizing method given that early 2022, with industrywide layoffs.

Drew Houston, Dropbox’s co-founder and CEO, announced in April that the firm was reducing its headcount by about 16%.

Dropbox’s 2017 lease for the model new headquarters was for 15 many years. Private-fairness agency KKR purchased the home in 2021 from its initial developer, Kilroy Realty Corp., for around $1 billion.

“As a end result of the amendment the organization will avoid future cash payments linked to hire and prevalent area upkeep expenses of $137 million and about $90 million, respectively, in excess of the remaining 10 calendar year lease expression,” Dropbox mentioned in Friday’s submitting.

A shorter walk absent from Dropbox, Uber has been making an attempt to sublease element of its headquarters. The San Francisco Chronicle claimed very last 7 days that Microsoft-backed OpenAI is close to having area there.

Dropbox had tried using performing with its landlord to sublease area at the headquarters, but the real estate market deteriorated, finance chief Tim Regan, advised analysts on a February earnings phone.

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