Silicon Valley tech giant Alphabet is expected to add another property to its growing list of former office hubs as the company prepares to offload yet another building as part of its yearslong real estate reduction streak.
The Google parent company appears to have opted against renewing its lease for an entire building near its sprawling headquarters in Mountain View, California. While the decision has yet to be formalized and could be reversed, CBRE has already started marketing the roughly 160,000-square-foot property at 1255 Pear Ave. that Google has occupied for the past decade.
"So far Google has indicated it is not going to renew," Geoff Gonzalez, one of the CBRE brokers tasked with backfilling the space, told CoStar News. "It was a build-to-suit for them, so we're trying to market it now and get someone else in there. It was fully built out with very high-end finishes, so we're going to get back a highly improved building that's much nicer than some of the other shell buildings nearby."
Google, which has vacated about 2.7 million square feet of leased office space in recent years, remains one of the Bay Area's largest corporate occupants. A company representative did not immediately respond to CoStar News' requests for comment.
The anticipated downsizing underscores the gulf created between the hyper-competitive, almost frenzied demand for Silicon Valley office space prior to the pandemic and the stagnant leasing volumes reported over the past few years.
The Silicon Valley and nearby San Francisco office markets were two of the tightest in the country before the 2020 COVID-19 outbreak, with office rents at record highs and vacancy rates at record lows.
Chasing Space
Limited construction meant new space was immediately swallowed up, and for fast-growing tech giants headquartered across the region, it meant chasing after space that had yet to exist, let alone secure city approvals.
Google, for example, preleased the Pear Avenue building before developer Sobrato Organization even broke ground. The five-story building was completed in 2015, adding to the tech company's vast portfolio of leased and owned properties around its Silicon Valley headquarters.
Yet similar to other tech giants around the world, Google has been on an aggressive cutting spree since the beginning of 2023. Many Silicon Valley companies over the past several years have been reducing their property holdings by shutting office locations, subleasing out unwanted space, terminating prelease agreements and walking away from future investments.
The cuts have reversed a decade of expansion that was fueled by soaring demand for its products and services, leading the company to lease, develop or acquire large swaths of space to accommodate its record headcount growth. Those cost-cutting efforts also coincide with plans to redirect the saved expenses from trimming previously vast real estate portfolios toward high-priority initiatives such as artificial intelligence.
The shift toward a more prudent approach to real estate growth has loaded up the Bay Area's real estate market with millions of square feet of available office space.
The availability rate across the greater Silicon Valley region has soared past 19%, according to CoStar data, with sublease listings totaling an all-time high of about 7.2 million square feet. Tenants last year collectively signed on for less than 5.3 million square feet of office space, just a fraction of the more than 14.8 million square feet of deals reported in 2018.
More prospective tenants
Even so, brokers in the area say that the influx of available options, coupled with tech giants' pullback, opens the door to a greater pool of prospective tenants that were either priced out or unable to compete in Silicon Valley's pre-pandemic office market.
"The folks out in the market are realizing they have a chance now to actually get in to really high-quality space," CBRE's Gonzalez said.
Gonzalez added that "there's less competition from the Googles and the Apples and the other high megacap companies because they've slowed down a bit, so other companies are now afforded opportunities to get in to submarkets that were either too expensive or had no supply."
Even though Silicon Valley and San Francisco are two of the three most expensive office markets in the country, an added bonus for Google's expected soon-to-be-empty Pear Avenue property is that it will be move-in ready for any tenant interested in taking on the space.
"Someone could come in and save a lot on capital expenses because it doesn’t require a build-out," Gonzalez said. "It already has all the bells and whistles that tenants are asking for now. We just need the demand to turn back a little."