Lendlease and Google have mutually agreed to terminate their development agreements for San Francisco Bay Area projects due to current market conditions. The decision followed a comprehensive review by Google of its real estate investments, and a determination by both organizations that the existing agreements are no longer mutually beneficial.
Lendlease had signed on to develop, build, and own the residential, retail, hospitality, and community components of the project, while Google was to develop office spaces. The projects were expected to have an estimated end development value of approximately $15 billion.
The commercial real estate market in California has been hit hard globally due to remote working, which has led to a decrease in demand for office space and declining property values. Office-vacancy rates in Silicon Valley, which includes the Northern California communities of San Jose, Palo Alto, and Sunnyvale, had risen to 17% in June, from 11% in 2019.
Lendlease said other unspecified projects in its development pipeline remain active. Google said it would continue focused growth in the region. The pullback underscores challenges developers face completing pricey, long-term projects amid rising interest rates and weakening demand for residential and office space.
The termination of the development agreements between Lendlease and Google for San Francisco Bay Area projects is a reflection of the decline in demand for office space and declining property values. The cuts represent a reversal from major expansion plans in the region by Lendlease and Google, which have invested hundreds of millions in land and planning costs over several years.