Lendlease Group and Google have opted to wrap up their collaboration on four extensive master-planned districts in the San Francisco Bay Area, collectively valued at $15 billion. This announcement, disclosed by the Australian firm on Friday, mirrors a broader trend as developers step back from California’s real estate scene.
Impacts on California’s Real Estate Sector
Commencing in 2019, the joint venture empowered Lendlease to spearhead the development of residential and retail landscapes across Sunnyvale, San Jose, and Mountain View. The venture held the potential to usher in approximately 15,000 new housing units to the vibrant region.
The commercial real estate sector in California, grappling with global challenges, faces a decline in demand for office spaces and property values. Notably, Unibail-Rodamco-Westfield (URW.PA), the proprietor of a major San Francisco shopping center, has similarly chosen to exit the market.
Google and Lendlease Roles in the Venture Bay Area
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The partnership delineated Lendlease to orchestrate the development of up to 15 million square feet comprising residential, retail, and hospitality spaces, with Google steering its focus toward crafting office environments. Sharing insights into the decision, Alexa Arena, Google’s Senior Director of Development, expressed, “We’ve been optimizing our real estate investments in the Bay Area, exploring diverse pathways to advance our development projects and fulfill our housing commitment.”
As of June-end, Google secured approval for 12,900 proposed housing units in San Jose and Mountain View. Despite the conclusion of their collaboration, a spokesperson affirmed that Google actively pursues new partnerships with developers and capital allies to propel the Bay Area developments forward.
Lendlease’s Temporary Pause and Market Implications
Earlier in the year, Lendlease temporarily paused its ambitious 47-story Hayes Point project in central San Francisco—the company’s most significant investment in the Americas. The pause aimed to secure tenants or identify a co-investor before resuming progress. In response to the concluded deal, Lendlease announced the removal of the San Francisco Bay project, initially slated for construction in fiscal 2026, from its development pipeline. Analysts at UBS observed that while market expectations for the project had diminished in the past 12-18 months, this change bears negative implications for medium-term (FY26-28) earnings.
Despite these developments, Lendlease maintains its fiscal 2024 forecast, with the core operating return on equity expected to align with the lower end of the 8%-10% range.
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