Google and Australia's Lendlease have just revealed they have canceled their ambitious $15 billion real estate plans for the San Francisco Bay Area that were announced four years ago.
The project aimed to include apartments, shops, and new office spaces. However, Lendlease terminated the agreement due to Google's reassessment of real estate investments.
While Lendlease expects Google to cover completed work, the financial implications remain unquantified. This decision resulted from existing agreements no longer benefiting both parties in current market conditions.
Rising office vacancy rates in Silicon Valley during the COVID-19 pandemic and Google's review signal prolonged office space vacancies.
- Lendlease originally anticipated project completion by 2038.
Google and Lendlease initially envisioned creating around 15,000 homes in San Jose, Sunnyvale, and Mountain View.
According to Lendlease's project details, this venture could have included over 15 million square feet of office, residential, retail, and other spaces.
The pandemic's impact on tech companies, including layoffs and hybrid work models, has affected office space demand.
Companies that initially retained office space anticipating a return to pre-pandemic norms are now reevaluating their real estate needs.
Data from CoStar Group showed office vacancy rates in Silicon Valley, including San Jose, Palo Alto, and Sunnyvale, rising to 17% in June from 11% in 2019. Mountain View faced even higher rates, exceeding 20% in the spring.
- This isn't the first time Google has significantly reduced its office space requirements.
Earlier this year, Google offered 1.3 million square feet of Mountain View and Moffett Park office space for sublease.
This move was part of a broader strategy announced in February to cut costs, adopt a hybrid work model, and reduce office space while laying off employees.
Alexa Arena, Senior Director of Development at Google, mentioned optimizing real estate investments in the Bay Area.
They are exploring options to advance development projects and meet housing commitments, which may involve collaborating with other developers and capital partners.
Edited by Nikola Djuric