Don’t worry if Google or Amazon are cutting down on leasing.
Think about the “next Google or the next Amazon” instead, Hudson Pacific Properties CEO Victor Coleman said on an earnings call this week.
With layoffs occurring across the tech industry, Coleman is betting that a laid off engineer will launch their own company. That company will then take up large swaths of office space in California and Seattle that has been left behind by Meta, Google, Pinterest, Microsoft, among others.
“This will give rise to innovative small and medium-sized companies that will ultimately expand within our portfolio and beyond just as they’ve done in past cycles,” he said.
But right now, Hudson Pacific has to worry about Google. Its parent company Alphabet, which has said it would spend $500 million in the first quarter to exit office leases and consolidate its space and laid off 12,000 employees last month, is Hudson Pacific’s largest tenant.
The firm denied it’s feeling the impact of tech giant’s pullback.
“We have not seen any indication of subleasing in any of our assets with them to date,” Coleman said, though he added Google is discussing maybe terminating half of its 208,000-square-foot lease at Hudson Pacific’s 3400 Hillview Avenue.
Hudson Pacific reported revenues of $270 million in the last quarter of 2022 — a 3 percent increase from the previous period, and up 12 percent from the fourth quarter of 2021.
The company has posted a loss four quarters in a row, rounding out the year with a net loss of $12 million, a slight improvement from the $17.3 million during the third quarter of last year. It reported $66.5 million, or $0.47 per share, in funds from operations from October through December, compared to $64.4 million, or $0.45 a share, in the third quarter of last year.
Hudson Pacific’s office portfolio — mostly concentrated in L.A., San Francisco and Seattle — seems to have fared better than average vacancy levels across the cities.
At the close of the fourth quarter, the firm’s portfolio was about 12 percent vacant. For comparison, more than a third of all office space in L.A. was vacant at the end of the year, according to Savills.
He looked at the layoffs the tech industry has seen as a positive for the office market, arguing employers will reemphasize being in the office improves “workforce productivity.” But, the firm is largely exposed to the impacts of tech layoffs.
Coleman added his firm is seeing some challenge from the fact that streaming services have cut back on producing content. Hudson Pacific has pivoted in the last two years to owning and developing huge studios in L.A. through a partnership with Blackstone.
Production activity waned as a result of “studios growing austerity measures” and other acquisitions, including Amazon buying MGM and Discovery taking over WarnerMedia, Coleman said.
Analysts on the Hudson Pacific’s earnings call also expressed concerned about strikes at Hollywood studios — after entertainment union International Alliance of Theatrical State Employees voted to go on strike last year — a concern that the firm’s studios head, Jeff Stotland, called “premature.”
Earlier this month, Disney said it would try to cut content spending by $3 billion over the next few years and examine the costs and volume of its original productions and look towards licensing instead.