Dropbox said Friday that it’s agreed to return over one quarter of its San Francisco headquarters to the landlord as the commercial real estate market continues to soften following the Covid pandemic.

According to a filing, Dropbox surrendered 165,244 square feet of space and paid $79 million in termination fees to its landlord. Dropbox will offload the space over time through the first quarter of 2025 under the amendment to its lease agreement.

After going remote during the pandemic three years ago, Dropbox has been looking for uses for the 736,000 square feet of office space it leased in Mission Bay in 2017, which was the largest office lease in the city’s history. It subleased nearly 134,000 square feet of space to Vir Biotechnology last year, leaving it with just over 604,000 square feet.

A $175.2 million impairment was also recorded on Dropbox’s office last year due to “adverse changes” in the market. In 2020, the company suffered a $400 million loss.

According to city data, San Francisco’s office vacancy rate reached 30% in the third quarter, the highest level since 2007.

As we’ve noted in the past, we have taken steps to de-cost our real estate portfolio as a result of our transition to Virtual First, our operating model where remote work is the primary experience for our employees, but where “we still come together for planned in-person gatherings,” according to a company spokesperson.

While the move provides a financial benefit to the cloud software vendor, it signals that demand for office space in the city remains weak and suggests more pain may be ahead for companies that signed big leases before the pandemic, when venture capital and public investors were fueling a tech boom. The tech industry has been in downsizing mode since early 2022, with industrywide layoffs in addition to remote work.

Dropbox’s CEO Drew Houston announced in April that the company was cutting its headcount by 16%.