Meta spends $181M to get out of lease at vacant London offices Meta is paying £149 million ($181 million) to release itself earlier than planned from a lease on an eight-story office block in London signed two years ago, which still lies vacant. The antisocial media biz took out a 20-year lease on 1 Triton Square near Regent's Park in the north-west of England's capital in 2021, something …
I thought corporate leases were a series of 5 year options, so a 20 year lease is actually a 5 year lease with three 5 year options. At least that's how they are all written around here. Maybe it is different in London, or different in the world of really pricey real estate in major cities?
If they signed it in 2019 I could understand, but in 2021? After they knew about covid and whole work from home thing?? What kind of morons made this decision???
Given that they paid 7 years worth to get out of it roughly two years in, it definitely wasn't a five year lease with five year options!
A business can buy leases of pretty much any length. To be fair, 10 and 20 years are pretty common for physically large lets, especially if you're intending to spend a decent chunk on outfitting the place.
Though it was fairly obvious back then that there would be a significant pause if not a downturn or recession after the pent-up demand of the pandemic was fulfilled. Opinions varied wildly on the length and depth, but not that it was coming.
You'd think an organisation the size of Meta would employ at least two economists.
"You'd think an organisation the size of Meta would employ at least two economists."
They do. But for true redundancy you need three in case one is giving you bad data. Meta are good with redundancies, but I'm not so sure the rule of three applies to economist as if you ask three economists for an opinion each, you'll get at least four different answers :-)
I suspect "buying out" of a lease has got more expensive in recent years since it's now much harder to replace an existing tenant. I wonder how well exit clauses are specified in tenancy agreements? I suspect the fallout will be to tighten up the exit clauses, making it harder to get out without great expense. Which will likely lead to potential tenants being a lot more wary of what they are signing. No one wants to admit their great enterprise might fail, but many will need to face the cold hard facts of how much failure or downsizing could cost them. And if the tenancy agreements are harder to get out of, the landlords will have even more difficulty renting out the space. It all seems rather Catch 22.
On the other hand, I see many businesses looking at the empty space and instead of reacting to and dealing with the problem and making changes to match the Brave New World that brings, many are now moving back their "bad old ways" and forcing people back in to actually use that space. I understand that in the USA it's common to get tax breaks on occupied buildings so having it below a certain occupancy threshold can cost the company money. AFAIK, in the UK, the opposite is true. You pay "rates" (local tax) on the value of the building, but unoccupied buildings attract a lower tax because if the building isn't used, then it's not costing the town/city anything in providing services. I'm not sure exactly how that works, but I have a feeling that lower tax is only for a couple of years, hence why empty shops/stores in town centre are often occupied by charities selling 2nd hand stuff on cheap, short(ish) term contracts. If the landlord is paying full rates, they may as well rent it out at "cost" or a little more rather than leave it empty at a loss.
I wonder if sub-let clauses will become popular?
And here we have the real reason behind the marching orders for peons to return to the office. If they have to pay to get out of a lease, that shows up on their balance sheet, which might mean missing quarterly targets, so no bonus. If employees have to pay to commute to the office, that comes out of the employee's bank account, and they only have silly things like mortgage payments and food to pay for, they don't need to make payments on their yacht like the top executives! Won't anyone think of the yacht sellers!?
I think the first counter-point to your point is that they'd pay the lease whether employees are in the office or not, so its a false economy to have people come in to the office.
Second counter-point: the company is actually saving money over the lifetime of the lease. One of the other posts here calculates the lump-sum vs. the total lease payments. They just elected to buy it out in one lump sum.
There's always some deadwood in every office, who seem to have no job other than attending random meetings. Wouldn't surprise me at all if at least one of them has already hit on this idea and they just wander around the building all day randomly swiping badges for people for a nominal fee.
over the fact that the owners of premium office space used to gouging the life out of businesses for their office space now have empty, un-rentable real estate all over the place. I hope they recover soon and can get back to their $20 million per month rentals. I was the victim of that but at a smaller scale when my landlord used to ask me how my (IT-related) business was going. "Great!" I always said. Big mistake. In two years, he raised the rent 4 times. It was for a 2-year lease with "rent adjustments" every 6 months in the contract. Those adjustments were never in my favor, naturally. I finally moved and the place has been sitting empty ever since. Oddly, many people seem to have never heard of the "Kill not the goose that lays the golden egg" idiom.
Back when I rented I would always tell the landlord a couple of months before renewal that I was having a hard time making it and could he see his way to reducing the rent? More often than not, it meant no increase that year. These days I own outright so no landlord problems.
"Regent's Park in the north-west of England's capital"
...or just spotty sub-editing? I'm sure another phrase would be clearer such as 'in the north-west of the capital city'.
PS: 5 years rent paid up front is a nice little earner. Suggest furnishing the ground floor and make some spaces available to startups as a gesture towards enticing people back into the centre of London. While converting upper floors into nice flats for fair rent to retired gentlefolk. I can dream.
>” While converting upper floors into nice flats for fair rent to retired gentlefolk”
Housing for the “over 50s” is nice renumerative con. It counts as social housing and so can be built in places where other styles of housing would not get planning, plus it cares a nice price premium, in part because there are a large number of single 50+ people who have money, who like the idea of independent living within a sheltered accomodation complex. Obviously having these people with time and disposable income within a city should benefit local shops, cafes etc.
"Regent's Park in the north-west of England's capital"
...or just spotty sub-editing? I'm sure another phrase would be clearer such as 'in the north-west of the capital city'.
I must admit to reading that and wondering when Facebook/Meta had set up a large presence in Manchester!
(yeah, ok, it's "Regent Retail Park", not quite the same, but it's "double North West", ie North West of England and also in the North West of Manchester, or very nearly)
Any lengthy contract will have a break clause in it. You can try to negotiate one before these points with the landlord, generally it'll cost you though.
Buildings generally come with maintenance liabilities, you can realise a saving in the above costs by not having to pay these, I'm sure the bean counters will have been all over it, whilst keeping away from windows.
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