Dropbox Drops Bucks To Ditch Digs In Long-term WFH Model

Dropbox is shuttering one-quarter of its office space at corporate HQ in San Francisco. To be more precise, it is paying $79 million to the landlord to amend the contract and forgo more than 165,000 square feet.

The file hosting service went fully remote under the Virtual First initiative in March 2020 when the world was dealing with the novel outbreak of coronavirus and governments started to initiate lockdowns.

The mode of working – 90 percent remote – has continued as other tech vendors mandate a return to the office. The company operates Dropbox Studios that allow for occasional in-person work. Some staff see it as a perk of the job, and a boost to a better work-life balance.

In an SEC filing, Dropbox confirmed it had entered into a lease amendment on October 6 with KRE Exchange Owner LLC for its HQ "whereby the company will surrender to the landlord 165,244 square feet of office space and pay an aggregate of $79 million."

Both the payments and moving out of the office will happen in three tranches: 51,956 square feet and $28.1 million paid in calendar Q4 this year; 54,253 square feet and $14.9 million in Q2 2024; and the remaining space and $36 million in the opening three months of 2025.

"As a result of the amendment the company will avoid future cash payments related to rent and common area maintenance fees of $137 million and approximately $90 million, respectively, over the remaining 10-year lease term," Dropbox says in the filing.

The 736,000 square feet HQ was first leased to Dropbox in 2017, and the company already subleased some space last year and in 2023.

In a statement sent to The Register, Dropbox said:

"As we've noted in the past, we've taken steps to de-cost our real estate portfolio as a result of our transition to Virtual First, our operating model in which remote work is the primary experience for our employees, but where we still come together for planned in-person gatherings. We've done this through past buyouts with our landlord and by pursuing subleases of our spaces globally."

In addition to the WFH movement at Dropbox, the company also needs less office space after instigating layoffs in April that saw 16 percent of the workforce chopped, equating to 500 employees.

Dropbox CEO Drew Houston blamed a slowdown in business growth and also said some investments that previously paid off are no longer doing so.

Many tech businesses said during the early years of the pandemic that the way their staff worked had changed forever but in the case of Dell and others, that "forever" lasted three years. Meta, Amazon, TikTok, and many more are now forcing staff into the office for three days a week, and are policing that return via the use of employee ID badges.

Last week, Roblox told employees they'd need to relocate to HQ to work in person or be prepared to find a new job.

Demand for office space has crashed across much of the world, with McKinsey saying in July that office attendance had stabilized at "30 percent below pre-pandemic norms."

• Dropbox limits 'all the storage you need' unlimited plan, blames abusive users
• Look, boss – Nvidia's still cool with staff working from home
• Dropbox admits 130 of its private GitHub repos were copied after phishing attack
• Meta spends $181M to get out of lease at vacant London offices

"The behavioral shifts have already had major effects on real estate in 'superstar' cities – roughly speaking, cities with a disproportionate share of the world's urban GDP and GDP growth. In superstar cities' urban cores, the percentage of office and retail space that is vacant has grown sharply since 2019, and home prices have increased more slowly than in the suburbs and other cities."

San Francisco is considered one of those cities. There, Dropbox will occupy roughly 439,000 square feet at HQ, and the plan is to reduce this to 90,000.

According to the US Bureau of Economic Research, remote work and the plunge in demand for office space had wiped an estimated $453 billion off the value of commercial real estate as of October 2022. ®