Google’s 80-acre San Jose mega-campus is on hold as company reckons with economic slowdown
Google’s construction site on future San Jose megacampus sits idle as company halts development amid cost-cutting.
Jennifer Elias
In June 2021, Google won approval to build an 80-acre campus, spanning 7.3 million square feet of office space, in San Jose, California, the third-largest city in the country’s most populous state. The estimated economic impact: $19 billion.
The timing couldn’t have been worse.
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A decade-long bull market in technology had just about run its course, and the following year would mark the worst for tech stocks since the 2008 financial crisis. Rising interest rates and recessionary concerns led advertisers to reel in spending, shrinking Google’s growth and, for the first time in the company’s history, forcing management to implement dramatic cost cuts.
The city of San Jose may now be paying the price. What was poised to be a mega-campus called “Downtown West,” with thousands of new housing units and 15 acres of public parks, is largely a demolition zone at risk of becoming a long-term eyesore and economic zero. CNBC has learned that, as part of Google’s downsizing that went into effect early this year, the company has gutted its development team for the San Jose campus.
The construction project, which was supposed to break ground before the end of 2023, has been put on pause, and no plan to restart construction has been communicated to contractors, according to people familiar with the matter who asked not to be named due to non-disclosure agreements. While sources are optimistic that a campus will be built at some point and said Google representatives have expressed a commitment to it, they’re concerned the project may not reach the scale promised in the original master plan.
The Mercury News, one of Silicon Valley’s main newspapers, previously reported that Google was reassessing its timeline. Sources told CNBC that the company started signaling to contractors late last year that the project could face delays and changes.
In February, LendLease, the lead developer for the project, laid off 67 employees, including several community engagement managers, according to filings viewed by CNBC. Senior development managers, a head of business operations and other executives were among those let go.
Last month, Google also removed construction updates from its website for the project, according to internal correspondence viewed by CNBC.
LendLease didn’t immediately respond to a request for comment.
Alphabet-owned Google is embarking on its most severe cost cuts in its almost two decades on the public market. The company said in January that it was eliminating 12,000 jobs, representing about 6% of its workforce, to reckon with slowing sales growth after headcount swelled before and during the Covid pandemic.
About a year ago, Google announced that it would invest nearly $10 billion in at least 20 key real estate projects in 2022. By then, the company had already completed much of its multi-year land grab of downtown San Jose for the future campus.
Money coming ‘when the cranes are in the air’
Things changed in a hurry. On Alphabet’s fourth-quarter earnings call in February, finance chief Ruth Porat said the company expected to incur costs of about $500 million in the first quarter to reduce global office space, and she warned that other real estate charges were possible in the future.
While the tech industry broadly is struggling to adapt to a post-Covid world that appears to be more hybrid in nature and less centered around large campuses, Google is in a particularly precarious spot because of its massive commitment, financial and otherwise, to altering the landscape of a major urban area.
“We’re working to ensure our real estate investments match the future needs of our hybrid workforce, our business and our communities,” a Google spokesperson said in an emailed statement. “While we’re assessing how to best move forward with Downtown West, we’re still committed to San Jose for the long term and believe in the importance of the development.”
Google spent several years planning for the San Jose complex and invested significant resources in winning over the local community. Opposition in some corners was so fierce that, in 2019, activists chained themselves to chairs inside San Jose’s City Hall over the decision to sell public land to Google. A multi-year effort to address community concerns ended with support from some of the project’s stiffest early opponents.
To win over the locals, Google designated more than half its campus to public use and offered up a $200 million community benefits package that included displacement funds, job placement training, and power for community leaders to influence how that money would be spent.
While some community benefits have already been delivered, the bulk is to be dispersed upon the office space development. Google also promised to build 15,000 residential units in Silicon Valley, with 25% of them considered “affordable,” a critical issue in an area with one of the highest homeless populations in the country, according to government statistics. Some 4,000 of those housing units were set to be built at Downtown West.
“We all originally knew that it’s going to be a long-term plan,” San Jose councilmember Omar Torres, who represents the downtown area, told San Jose Spotlight in February. “But yes, it’s definitely concerning that a lot of the money is coming when the cranes are in the air.”
Google’s construction site sits idle on a Tuesday afternoon.
Jennifer Elias
The demolition phase of the project took out a number of historic San Jose landmarks and forced the relocation of others. A 74-year-old dancing pig sign for Stephen’s Meat Products had to be moved, and only a small part of an old bakery building remains.
Patty’s Inn, an 88-year-old beloved pub, didn’t survive the teardown.
“This is a dive bar, but I never thought of it as a dive bar. It was just Patty’s Inn,” Jim Nielsen, an executive at RBC Wealth Management and longtime patron of the bar, told the Mercury News at the time. “It’s tough to see these places go away because they can’t be replaced.”
The new campus was expected to bring some 20,000 jobs to the city.
Empty swaths of land
CNBC visited the site a couple times in April during the normal workday, to see swaths of land where old buildings have been replaced by cranes, tractors and other construction equipment in a fenced-off area. Nobody was working on site.
Construction projects of this scale take a long time. Google had originally said it would likely need between 10 and 30 years to build out the campus, so it still has a significant cushion to resume development.
LendLease said in 2019 that it struck a $15 billion deal with Google to spend the next 10 to 15 years redeveloping the company’s landholdings in San Jose as well as nearby Sunnyvale and Mountain View, where Google is headquartered.
“LendLease will play a key role in helping deliver at least 15,000 new homes on our land,” David Radcliffe, Google’s real estate lead at the time, said in a press release.
But Radcliffe left Google in late 2022 after 16 years at the company. He was replaced by Scott Foster, who previously led global real estate for financial firm RBC. Sources familiar with Google’s real estate projects described Foster as someone who is expected to be more conservative in spending, and more likely to slim down the scale of the campus, especially amid cost-cutting efforts.
With construction at the site currently stalled, San Jose sits without an expected anchor tenant in an empty swath of its downtown. Dozens of vendors and contractors that were expecting work are focusing on other projects as they wait to hear what happens next.
The mood is vastly different than it was less than two years ago, when Gov. Gavin Newsom stood beside Google Senior Vice President Kent Walker at an event in San Jose, ahead of a city council meeting that would determine whether the project got approved. Newsom used the occasion to sign SB 7, a bill to speed up construction of housing and development projects.
Newsom and officials cited Google’s proposed mega-campus several times as an example of the state’s economic “comeback” from the Covid pandemic.
ServiceTitan offices in Draper, Utah.
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ServiceTitan, a company that sells software to contractors such as plumbers and roofers, on Monday filed to go public on the Nasdaq under the ticker symbol “TTAN.”
The filing suggests that investors could be getting more interested in next-generation software companies. Just a few, including Reddit and Rubrik, debuted on public markets in the U.S. this year, and chipmaker Cerebras filed for an initial public offering. There were basically no tech initial public offerings in 2021 or 2022 as central bankers pushed up interest rates to flight inflation, making investors less willing to bet on money-losing challengers.
Based in Glendale, California, ServiceTitan offers cloud software for advertising, scheduling jobs, dispatching, producing invoices and taking payments. It had a $35.7 million net loss on $193 million in revenue in the quarter that ended on July 31, according to the filing. Revenue was up about 24% year over year, and the quarterly loss had narrowed from almost $52 million.
ServiceTitan’s revenue growth rate will stand out for people investing in cloud stocks, who have seen rates sag with few new public companies in the sector. The average growth rate for Bessemer’s Nasdaq Emerging Cloud Index, the basis for the WisdomTree Cloud Computing Fund, is 16.6%.
The company was originally founded in 2007 by Ara Mahdessian and Vahe Kuzoyan, whose fathers were both residential contractors. While most ServiceTitan customers are small and medium-sized businesses, it has started focusing more on selling products to big companies and construction customers, according to the filing.
ServiceTitan plans to keep up to 5% of shares in the IPO for eligible clients, the founders’ friends and family members and others through a directed share program.
Investors include Battery Ventures, Bessemer Venture Partners, Iconiq and TPG. Iconiq on its own controlled 24% of the compan’s Class A shares.
Competitors include Salesforce and SAP, along with specialty companies such as HouseCall Pro, Jobber and Workwave.
Goldman Sachs, Morgan Stanley, Wells Fargo and Citigroup are among the company’s IPO underwriters.
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European tech CEOs urge ‘Europe-first’ mentality to counter U.S. dominance after Trump victory
Thomas Plantenga, CEO of used fashion resale app Vinted, on center stage during Web Summit 2024 in Lisbon, Portugal.
Harry Murphy | Sportsfile for Web Summit Getty Images
LISBON, Portugal — Tech CEOs in Europe are urging region al countries to take bolder action to tackle Big Tech’s dominance and counter reliance on the U.S. for critical technologies like artificial intelligence after Donald Trump’s electoral win.
The Republican politician’s victory was a key topic among prominent tech bosses at the Web Summit conference in Lisbon, Portugal. Many attendants said they’re unsure of what to expect from the U.S. president-elect, citing this unpredictability as a core challenge at present.
Andy Yen, CEO of Swiss VPN developer Proton, says Europe should echo American protectionism and adopt a more “Europe-first” approach to technology — in part to reverse the trend of the last two decades, during which much of the Western world’s most important technologies, from web browsing to smartphones, have become dominated by a handful of large U.S. tech firms.
VPNs, or virtual private networks, are services that encrypt data and mask a user’s IP address to hide browsing activity and bypass censorship.
“It’s time for Europe to step up,” Yen told CNBC on the sidelines of Web Summit. “It’s time to be bold. It’s time to be more aggressive. And the time is now, because we now have a leader in the U.S. that is ‘America-first,’ so I think our European leaders should be ‘Europe-first.'”
One key push for the past decade from the European Union has been to take legal action and introduce tough new regulations to tackle the dominance of large technology players, such as Google, Apple, Amazon, Microsoft and Meta.
As Trump prepares to come into power for a second mandate, concerns have now mounted that Europe might reel in its tough approach to tech giants out of fear of retaliation from the new administration.
US Big Tech playing ‘extremely unfairly’
Proton’s Yen, for one, urged the EU not to water down its attempts to rein in America’s tech giants.
“Europe has been thinking in a very globalist mindset. They’re thinking we need to be fair to everybody, we need to open our market to everybody, we need to play fair, because we believe in fairness,” he told CNBC.
“Well, guess what? The Americans and the Chinese didn’t get the memo. They have been playing extremely unfairly for the last 20 years. And now they have a president that is extremely ‘America-first.'”
Mitchell Baker, former CEO of American open internet non-profit Mozilla Foundation, said the EU’s DMA has led to meaningful changes for the Firefox browser, with activity increasing since Google implemented a “choice screen” on Android phones that enables users to select their search engine.
“The change in Firefox new users and market share on Android is noticeable,” Baker said. “That’s nice for us — but it’s also an indicator of how much power and centralized distribution that these companies have.”
She added, “This change in usage because of one choice screen isn’t the full picture. But it is an indicator of the kind of things that consumers can’t choose and that businesses can’t build successfully because of the way the tech industry is structured right now.”
Thomas Plantenga, CEO of Lithuania-headquartered used clothing resale app Vinted, urged Europe to take the “right choices” to ensure the continent can “fend for ourselves” and does not get “left behind.”
“If you look very realistically at what countries do, they try to take care of themselves and they try to form coalitions to be stronger themselves, and as a coalition be stronger,” Plantenga told CNBC in an interview. “We have a lot of very talented, well-educated people.”
“We need [to] ensure that we can take care of our own safety, that we can take care of our own energy, that we ensure to keep on investing in our education and innovation so that we can keep up with the rest [of the world],” he stressed. “If we don’t, then we’ll be left behind. In every collaboration, it’s always a trade. And if we don’t have much to trade, we become weaker.”
‘AI sovereignty’ now a key battleground
Another theme that attracted much chatter on the ground at Web Summit was the idea of “AI sovereignty” — which refers to countries and regions localizing critical computing infrastructure behind AI services, so that these systems become more reflective of regional languages, cultures and values.
With Microsoft becoming a key player in AI, concerns have surfaced that the maker of the Windows operating system and Office productivity tools suite has secured a dominant position when it comes to foundational AI tools.
The tech giant is a key backer behind ChatGPT maker OpenAI, whose technology it also heavily uses in its own products.
For some startups, Microsoft’s decision to embrace AI has resulted in harmful, anti-competitive effects.
Last year, Microsoft hiked the fees it charges search engines to use its Bing Search APIs, which allow developers access to the tech giant’s backend search infrastructure — in part because of higher costs attached to its AI-powered search features.
“They’re gradually reducing our revenue — we’re still relying on them — and that reduces our capacity to do things,” Christian Kroll, CEO of sustainability-focused search engine Ecosia, told CNBC. “Microsoft is a very fierce competitor.”
CNBC has reached out to Microsoft for comment.
Ecosia recently partnered with fellow search provider Qwant to build a European search index and reduce dependence on U.S. Big Tech to deliver web browsing results.
Meanwhile, the European Union’s AI Act, a landmark artificial intelligence law with global implications, introduces new transparency requirements and restrictions on companies developing and using AI.
The laws are likely to have a big impact on predominantly U.S. tech firms, since they’re the ones doing much of the development of — and investment in — AI.
With Trump set to come into power, it’s unclear what that could mean for the global AI regulatory landscape.
Shelley McKinley, chief legal officer of code repository platform GitHub, said she can’t predict what Trump will do in his second term — but that businesses are planning for a range of different scenarios in the meantime.
“We will learn in the next few months what President-elect Trump will say, and in January we will start seeing some of what President Trump does in this area,” McKinley said during a CNBC-moderated panel earlier this week.
“I do think it is important that we all, as society, as businesses, as people, continue to think about the different scenarios,” she added. “I think, as with any political change, as with any world change, we’re still all thinking about what are all of the scenarios we might operate.”
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