Big Tech’s Impact on the Commercial Real Estate Space
The Work From Home Boom Causes Changes in the Real Estate Market
When the COVID-19 pandemic first hit the US in March, millions of tech workers grabbed their laptops and went home for what they thought would be a few weeks of working remotely. Now, about six months later, many big tech companies are still out of the office indefinitely. Facebook (FB) and Google (GOOGL) said they will give employees the option to be remote well into 2021. Twitter (TWTR) and Square (SQ) said employees will be able to work from home “forever.”
The work from home boom is not just a temporary anomaly. Big tech companies changing their business models is impacting the real estate landscape—both in urban areas where offices are closed, and in more rural areas.<.p>
Subleases Surge in San Francisco
In San Francisco, a hub for big tech offices, demand for office space has plummeted. Last week, Twitter listed 104,850 square feet of space in its San Francisco headquarters for sublease. In August, Pinterest (PINS) broke its 490,000 square-foot lease in SoMa.
The amount of office space available for sublease in San Francisco has gone up by 65% as a result of the pandemic. There is about 6.7 million square feet of office space for sublease in San Francisco currently, compared to normal levels of about 1 million square feet. Some analysts expect that even more companies will abandon their office space in the coming months, and the market will not bottom out for another year.
Tech Companies Snap Up Real Estate Elsewhere
While big tech companies are vacating office space in some urban centers, they are buying real estate in other places. For example, Amazon (AMZN) is making plans to put 1,000 new warehouses in suburban neighborhoods, which will impact the real estate landscape across the country. The company is also adding warehouse space near big cities to help with last mile delivery.
Additionally, Facebook just paid $367.6 million for a custom-built office complex that was supposed to be the headquarters for REI, the outdoor clothing and gear retailer. REI decided not to move into the campus, located outside of Seattle, because of the pandemic. The move shows that Facebook plans to have at least some employees return to working from physical offices eventually.
The Unsung Hero of the S&P 500: An Air Conditioning Company
Carrier Global’s Stock Surges
Tech titans like Apple (AAPL), Amazon, (AMZN) and Nvidia (NVDA) have been generating buzz on Wall Street, but one less flashy stock has outperformed them all: Carrier Global (CARR).
Carrier Global is a 105-year-old heating, ventilation, and air conditioning company which has seen its shares rise by 143% on the year after it split from United Technologies and became an independent company. By this measure, it is currently the best performing stock in the S&P 500. The next-closest stock is Nvidia, the chipmaker, which has seen 119% gains.
Solutions for Indoor Air Quality Safety
The COVID-19 pandemic has caused demand for Carrier Global’s services to rise. Over the summer, people working at home were eager to install new HVAC systems. Carrier saw residential HVAC orders jump by 100% in June.
Additionally, offices, schools, malls, and other indoor spaces are turning to Carrier Global for solutions to prevent the novel coronavirus from spreading indoors. In just three weeks, Carrier developed a portable air cleaning system called OptiClean, and sold thousands of units to school districts and other clients. "COVID has shined a light on the criticality of safe and healthy indoor environments. And that's exactly what we do," explained David Gitlin, Carrier’s CEO.
Potential Vaccine Distribution Business
Carrier also makes refrigeration systems that help companies transport food, medicine, and other perishable items. This equipment could be very helpful for distributing a COVID-19 vaccine. As COVID vaccine trials unfold, Carrier is in discussions with several companies about engineering refrigerated distribution chains for these vaccines.
Though Carrier has not been in the limelight as much as some other companies during the pandemic, its shares have seen stunning growth, and investors will be eager to see if this trend continues.
Friday Fundings: Klarna, Zwift, Tonal, and dLocal
Klarna Hits a $10 Billion Valuation
Klarna, a Sweden-based online payment unicorn, just raised $650 million in a new financing round. This brings the company’s total valuation to $10 billion. Silver Lake led the round with participation from GIC, BlackRock (BLK) and HMI Capital.
Klarna is best known for its “buy now pay later” services. Online retailers use Klarna to give their customers ways to pay for products in installments. This kind of payment system is quickly becoming more popular. For some time, retailers have offered installment payments for big-ticket items like furniture, but recently ecommerce vendors are allowing customers to pay for smaller items, from beauty supplies to electronics, in small chunks.
Over one third of consumers in the US have used an installment payment system. At a time when ecommerce is booming, and many people are in strained financial situations, these types of payment systems may become even more widespread.
At-Home Fitness Companies Zwift and Tonal Secure New Funding
The at-home workout boom shows no signs of slowing down. As evidence of investors’ belief in the industry, Peloton’s (PTON) shares have more than tripled since the company’s IPO. Startups in the sphere are also raking in funding. Zwift, an online fitness service that gives users biking and running workouts in virtual worlds, raised $450 million in a Series C round led by KKR. Tonal, which makes home gyms designed for strength training, just raised $110 million in a Series D round with participation from several high-profile athletes including Steph Curry, Bobby Wagner, and Michelle Wie.
Though some gyms have reopened, many remain shuttered. Even when the pandemic subsides, it’s likely that some fitness enthusiasts will stick to habits formed during the pandemic, and may still be more inclined to work out at home.
Cross-Border Payment Platform, dLocal
dLocal, a cross-border payment system, has become the first unicorn based in Uruguay after a $200 million funding round. Existing investor General Atlantic led the round with participation from new investor, Addition.
dLocal processes payments from 20 emerging markets for large companies including Spotify (SPOT) and Google (GOOGL). dLocal plans to use its new financing to move into 13 new markets in Central America, Africa, and Southeast Asia. Since the company began in 2016, dLocal has been profitable every year and has seen 100% annual growth over the past four years.