Google and property developer Lendlease have halted their plans to develop four master-planned communities collectively known as the San Francisco Bay Project. Both companies have taken this step following a thorough review of Google's existing real estate investments and the new market realities presented by the pandemic.
This proposed project was widely speculated as a dynamic step towards creating ‘Google suburbs or GoogleBurbs, also know as Googleville', built predominantly around Google offices. However, the rise in remote working and cost-cutting efforts has essentially made this concept redundant.
Foresight of Trends or an Embarrassing Retreat?
Insights gathered from an official filing by Lendlease indicate that such a venture has deemed mutually unprofitable under the current market conditions. Nevertheless, the project will compensate the real estate developer for the already incurred planning and groundwork expenses.
The ambitious project, which was slated to kickstart in 2026 and reach completion by 2038, was designed to encompass various campuses including San Jose's Downtown West, Sunnyvale's Moffett Park, Mountain View's North Bayshore and Middlefield Park. This mixed-use neighborhood project was to feature residential, retail, hospitality, and civic components, bringing together approximately 15,000 new housing units valued at nearly $15 billion. A commendable 25% of these housing units were slated to be affordable, enhancing the inclusivity quotient of these communities.
Google's Real Estate Optimizing Efforts
Google's senior development director Alexa Arena stated that Google has been optimizing its real estate investments in the Bay Area and that they are considering various alternatives to move development projects forward and successfully deliver on their “housing commitment”.
Work on the Downtown West campus in San Jose has been paused since the beginning of 2023, resulting in a noticeably large construction site and a palpable sense of unease. Google had been proactive in winning the support of local residents offering access to its campus and allocating $200 million for displacement funds along with job opportunities and community resources.
However, the changing dynamics of the workplace and increasing acceptance of telecommuting has led to Google reassessing its real estate commitments. With the office spaces at many of Google's US cloud staff locations resembling “ghost towns”, the company has started resorting to desk-sharing and downsizing its physical assets.
Facing Economic Reality
Google's quest for cost-cutting goes beyond the realm of real estate alone. The company confirmed its plans to cut 12,000 jobs earlier this year to cope with slower revenue growth. This move came as a corrective measure post the post-COVID recruitment frenzy that saw Google's workforce swell from 120,000 to 186,000. Notable company perks and facilities like corporate cafés too bore the brunt of this cost-cutting endeavor.