Construction on Google's most expansive real estate development yet is said to have been put on ice indefinitely as the tech giant implements widespread cost-cutting measures that gutted the more than $1 billion transit-oriented project.
The Silicon Valley company's plans for an 80-acre campus situated around Diridon Station, a major transit hub located on the western edge of downtown San Jose, California, are on hold after completing the first demolition phase, a significant setback for what would have been a decade-long commitment to investing in the city's growth. What's more, Mountain View, California-based Google's lead developer for the project, Lendlease Corp., disclosed plans earlier this year to lay off nearly 70 Bay Area-based employees, including several development managers.
Work on the Downtown West project, which was supposed to break ground in July of this year, is now on pause with no plan to restart construction, CNBC reported. While a Google spokeswoman would not confirm or deny whether the company has shelved work on the San Jose site, she told CoStar News that the original timeline for the development may not begin as planned.
“We’re working to ensure our real estate investments match the future needs of our hybrid workforce, our business and our communities,” she said in an emailed statement. “While we’re assessing how to best move forward with Downtown West, we’re still committed to San Jose for the long term and believe in the importance of the development.”
Downtown West, which was approved by San Jose city officials two years ago, was expected to accelerate the revitalization of the downtown area that has struggled with office vacancy and has had little ground-up office development in about a decade. The long-awaited development was cleared for 7.3 million square feet of office space; 4,000 housing units; 300 hotel rooms; 500,000 square feet of retail space; and 15 acres of open space and parks.
A Lendlease spokesman declined to comment on whether the developer's expected layoffs were related to the Downtown West project.
State of Flux
The decision to pause work on the project — Google's largest real estate investment to date — coincides with parent company Alphabet’s move to aggressively shrink its corporate office footprint.
While it is still moving forward with a handful of projects in places such as Texas and California, company executives said recently that the tech giant expects to take a $500 million hit within the first quarter this year to close offices and end leases as it seeks to reduce expenses.
The termination costs come alongside a slowdown in hiring and a plan to reduce the company’s anticipated investments in future office space.
Top real estate executives with the company have also left in recent months. Jay Bechtel, who oversaw more than 30 million square feet of leases and about $20 billion in corporate real estate purchases, recently departed as Alphabet’s corporate real estate transaction executive after nearly 20 years with the organization.
It is a dramatic turnaround for the tech giant, which just last year said it would spend upwards of $10 billion across about 20 key real estate projects in 2022. In the months since, it has announced plans to lay off about 12,000 employees — roughly 6% of its global workforce — and has stopped providing online construction updates for several of its projects.
San Jose officials, many of whom advocated for the project and its estimated $200 million in economic benefits, said Google's timeline was always tentative.
"Maybe it's just not something that people wanted to believe," Nanci Kline, the city's economic development director, said in a statement, that Google's decision to pause the project was "something we always knew."