Google parent Alphabet Inc. is pumping the brakes on hiring, a move that often foreshadows a similar easing of real estate investment, as the tech giant slows one of the largest sources of its years-long expansion.
The Mountain View, California-based company said hiring efforts would be significantly lower for the remainder of 2022 and for the year ahead as it reported its fifth consecutive quarter of slowing sales growth as a result of lower advertising spending and an increasingly challenged economy.
"Our actions to slow the pace of hiring will become more apparent in 2023," Chief Financial Officer Ruth Porat told investors on the company's earnings call Tuesday, referring to the company's plan to boost profitability and brace for headwinds prompted by an increasingly uncertain global economy.
Porat said employment growth in the fourth quarter will be less than half of that in the period ended Sept. 30. Alphabet added nearly 12,800 full-time employees in the third quarter, the biggest quarterly staffing increase in its history.
"In terms of profitability, we have an effort underway to ensure we redeploy investments for our most compelling opportunities," the CFO said, adding that capital expenditures would be focused on technical infrastructure such as data centers. She made no mention of office finish-outs or groundbreakings, both of which have been cornerstones of the company's past investments.
Alphabet reported revenue of $69.1 billion in the quarter ended Sept. 30, an increase of about 6% from the year-earlier period but below analysts' expectations. The Silicon Valley company's revenue growth in the third quarter was its lowest since the second quarter of 2020 when the pandemic temporarily halted the global economy. Sales for the same period last year, by comparison, rose 41% over the year earlier.
Braced for Impact
A slowdown among some of the nation's largest tech companies has served as a warning to the commercial real estate industry. Hiring by Alphabet, Facebook parent company Meta, Apple, Amazon and others has fueled record employment growth and supported a string of blockbuster leases and acquisitions over the past two years.
By the end of 2020, the tech industry accounted for about one-fifth of the country's total office leasing activity, according to data from CBRE, as some of the largest companies — including Meta, iPhone maker Apple, software and gaming giant Microsoft and investment platform Robinhood — invested in the idea that offices would play a critical role in the future of work.
In the years since the pandemic started, many large tech firms gobbled up real estate across the country as they raced to keep up with record headcount growth and spend the money coming in thanks to a pandemic-related surge in business. Meta alone leased more than 2.2 million square feet of office space in New York City between 2020 and 2021.
That growth came to a halt earlier this year, however, as concerns over the war in Ukraine, extended pandemic-related lockdowns and rising inflation rates spurred companies to rethink their spending. The combination of ongoing remote work trends and an uncertain economic outlook has also pushed a number of companies to offload office space or pull back on plans to expand their real estate portfolios.
Alphabet was among the tech firms that raked in record profits during the pandemic, feeding significant spikes in hiring and feeding leasing and acquisition activity in anticipation of the gradual return of its workforce to the office. The company's global workforce now includes more than 186,750 people. It employed just shy of 140,000 people at year-end 2021.
"It's both about the efforts we're taking around expense management and building a more durable performance, as well as the efforts we're taking in investing in things that drive top-line performance," Porat said. "We want to free up where we can to ensure we have the capacity to invest as needed in opportunities that will deliver durable, long-term results."