As developers continue to pull out of California’s real estate market, Lendlease Group (LLC.AX) and Alphabet’s (GOOGL.O.) Google are mutually concluding development services agreements for four master-planned districts in the San Francisco Bay Area valued at $15 billion, the Australian business announced on Friday.
In 2019, Google awarded Lendlease a contract to build residential and retail space in Sunnyvale, San Jose, and Mountain View. This project is expected to result in the construction of around 15,000 additional housing units in the area.
Due to the decline in property prices brought on by remote work, California’s commercial real estate market is among the worst in the world. Companies such as Unibail-Rodamco-Westfield (URW.PA), the owner of one of San Francisco’s most prominent retail centers, have left the state.
Lendlease was responsible for developing up to 15 million square feet of residential, retail, and hospitality space as part of the project, while Google was to create office space.
Alexa Arena, senior director of development at Google, stated, “We’ve been optimizing our real estate investments in the Bay Area, and part of that work is looking at a variety of options to move our development projects forward and deliver on our housing commitment.” According to Google, 12,900 of the projected housing units had development approval in San Jose and Mountain View as of June.
According to a spokesman, to advance the Bay Area ventures, the business is still seeking to collaborate with financing partners and developers. Lendlease also put a hold on its most significant project in the Americas, the 47-story Hayes Point building in central San Francisco, earlier this year to recruit co-investors or tenants.
The San Francisco Bay project, whose construction was scheduled to start in fiscal 2026, will no longer be included in Lendlease’s development pipeline.
“While market expectations for the project have deflated over the past 12–18 months, the change is negative for medium-term (FY26–28) earnings,” UBS analysts stated.
Lendlease did not alter its prediction for the fiscal year 2024, which called for a core operational return on equity between 8% and 10%.
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