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Why Is Google Spending $9.5B on Offices in the Work-From-Home Era?

TheStreet logo TheStreet 4/13/2022 Tony Owusu
Why Is Google Spending $9.5B on Offices in the Work-From-Home Era? © Provided by TheStreet Why Is Google Spending $9.5B on Offices in the Work-From-Home Era?

When everyone goes right, innovators go left.

That mantra has worked well for Silicon Valley over the past three decades, as companies in suburban San Francisco and the Peninsula have fundamentally transformed life around the world.

Alphabet's Google is one of those game-changing, left-turning companies.

But while the company's current plan definitely bucks the trend the rest of the world since the pandemic arrived, it may be in a confusing way.

According to the Wall Street Journal, a record amount of U.S. office space is set to hit the market this year, as leases expire in record amounts.

Many companies have abandoned their big downtown offices and opted for either a complete work from home structure or a mixed approach, where employees only come into the office part-time.

The result is that leases for 243 million square feet of U.S. office space are set to expire this year, according to an analysis from real-estate services firm JLL.

Those expiring leases represent about 11% of the nation's overall leased office space.

Many office tenants whose leases expired in 2020 and 2021 negotiated extensions of only a year or two, according to the analysis, leaving a glut of expiring contracts on deck for 2022.

Those expirations represent a 40% increase since 2018, leaving landlords and banks in a firmly renter friendly market.

So if Google ever wanted to get a deal on office real estate, 2022 is the year to invest.

Google's Plan to Expand Office Footprint

Video: Key steps you need to establish an estate plan (CNBC)


And invest it has. Google plans to spend $9.5 billion in 2022 on office space and data centers.

The company has not been shy about expansion in the past, spending $37 billion over the past five years on office space and data centers in 26 states.

But it is raising the stakes with its $9.5 billion investing.

"Google's offices and data centers provide vital anchors to our local communities and help us contribute to their economies," CEO Sundar Pichai said in an statement Wednesday.

"Along with these investments, we expect to create at least 12,000 new full-time Google jobs by the end of the year, and thousands more among our local suppliers, partners and communities."

Google says it will invest in its long-term office presence in New York and make improvements to its Cambridge, Mass., and Pittsburgh, Penn., campuses.

The company is opening a new Atlanta office later this year and says it is making progress on its new downtown Austin office.

In California, the company will invest in offices, as well as affordable housing initiatives, in the Bay Area. Google will also make investments in its Kirkland and Seattle campuses in Washington state.

Google says it is continuing to build out its campus in Boulder, Colo.

How will Google Convince People to Return to The Office?

Google's head isn't in the sand. It knows that it is bucking the work from home trend with its latest investment.

"It might seem counterintuitive to step up our investment in physical offices even as we embrace more flexibility in how we work," Pichai said.

"Yet we believe it's more important than ever to invest in our campuses and that doing so will make for better products, a greater quality of life for our employees, and stronger communities," Pichai said.

In early March, Google announced that it was ending the work-from-home option for most of its employees in the Bay Area, transitioning instead into a model that has employees come into the office for at least three days out of the week.

Before you feel too bad for those employees, it's worth noting just how much Google's forward-thinking approach to workspace has transformed corporate office culture.

Googlers are allowed to bring their pets to work. Employees at the campuses are offered free meals and the campuses often have a variety of cafes, restaurants and micro kitchens strewn throughout the space.

The company also offers free exercise classes at the fitness centers it has on some of its campuses.

Google has a bunch of tools in its arsenal to entice workers back into the office. It also has the funds to expand its campuses and make a return to the office a reality.

This article was originally published by TheStreet.

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