The Ripple Effects of Tech Layoffs in 2024 on the Economy, Commercial Real Estate and Site Selection

The tech sector, a stalwart of the U.S. economy, is undergoing significant changes. So far in 2024, the industry has undergone approximately 100,000 layoffs globally, with about 70% of these in the United States. This downturn could have profound implications not just on the economy but also on work-from-home trends, commercial real estate and site selection.

Impact on the economy

The tech industry contributes about $2 trillion to the U.S. gross domestic product (GDP) and employs around 12 million workers, making it a critical economic driver. The large-scale layoffs could thus significantly dampen economic growth, potentially affecting everything from consumer spending to innovation rates.

Work-from-home and office dynamics

During the COVID-19 pandemic, tech companies were at the forefront of the shift to remote work, fostering a “work from anywhere” culture. However, with recent layoffs, there could be a strategic shift. Companies might reconsider their remote work policies to enhance team cohesion and productivity, potentially coaxing employees back to the office. This shift could help firms bolster team morale and streamline communication, mitigating some of the isolation that remote work can sometimes cause.

Vacancy and office returns

The U.S. currently has approximately 1 billion square feet of vacant office space, marking an all-time high with vacancy rates surpassing 15% in several major cities and even higher in others. Latest estimates suggest that about 65% of companies across all industries have implemented some form of physical office return, whether full-time or hybrid. However, only about 30% have returned to the office full-time, indicating a slow reoccupation of these vast empty spaces.

Commercial real estate

The layoffs pose a challenge for the commercial real estate sector, especially in tech hubs like San Francisco, Austin and New York City. Many large tech campuses are still underutilized as employees continue to work remotely. With a significant portion of the workforce laid off, the demand for office space could decline further, impacting the absorption rates of commercial properties across major cities.

Impact of AI on tech employment

The integration of artificial intelligence (AI) into business processes is poised to reshape the demand for tech workers significantly. AI's ability to enhance productivity might reduce the need for a large workforce, particularly in roles that are routine and repetitive.

This trend could dampen job growth in the industry, especially in offshore markets where lower-level software development tasks are often outsourced. However, it may also present an opportunity for U.S. companies to optimize their onshore workforce. By leveraging AI, companies can enable their more expensive, onshore talent to focus on higher-level, strategic activities. This shift could see a reduction in offshoring as the comparative advantage of lower labor costs becomes less significant against the backdrop of AI-driven efficiency.

Site Selection and relocation from traditional tech hubs

Given the high cost of living, tax rates and challenging commutes in traditional tech hubs, companies may look to more strategic locations for expansion as the job market recovers. Cities like Austin, Dallas, Atlanta, Omaha, Phoenix and Salt Lake City could see further growth as the newer tech hubs driven by lower living costs, lower labor costs and favorable business climates.

Economic incentives entice tech companies

Governments are increasingly offering economic incentives to attract companies that are deciding on new locations, especially those creating high-paying tech jobs. These incentives, which can include tax abatements, job creation grants and tax credits, are particularly enticing for companies looking to optimize operational costs in the wake of financial strains from layoffs and other economic pressures.

Layoffs announced by tech companies

Site Selection Group researched where some of these layoffs occurred. The following table summarizes some of the larger tech layoffs announced so far in 2024. It is clear that the larger tech hubs have been hit the hardest.

Conclusion

The tech industry’s layoffs in 2024 are a bellwether for broader economic and workplace changes. While challenging, these shifts also offer opportunities for companies to rethink and potentially optimize their operational and real estate strategies in response to an evolving economic landscape. The rise of AI could further influence these dynamics, potentially leading to more fundamental changes in where and how tech companies operate.