Why is Google buying up so much real estate?
Despite the fact that Google is renowned for its groundbreaking technology, ever popular services and forward thinking, many realtors in the South Bay Area of California have been reporting excessive demand from the company for real estate. It is common knowledge that the company has recently leased an array of properties with square footage in the millions even though many of these properties are not yet occupied. Why is the company buying up so much real estate in the South Bay Area of California? Is Google dictating real estate prices in the region?
Is price no object?
Even though Google is one of the most secretive companies you will ever come across, it is common knowledge that the company has acquired property leasing agreements for dozens of properties in California. This is a company which generates significant cash flow, has a massive warchest and the ability to look many years further ahead than its nearest competitors. So, is Google dictating real estate prices and office rental rates in the region?
When you see news of Google buying up property developments which have not yet been finished, accumulating office space for around 30,000 new workers and acting as if price is not an issue, real estate investors in the region sit up and listen. We know very little about specific area employment statistics for Google except that the company had 55,000 employees as at the end of September 2014. The addition of a further 30,000 employees is a significant expansion and recent property investments have to all intents and purposes supported the local market.
Quote from PropertyForum.com: “We all have our very own distinct opinions on property investment, what makes a good property and what makes a good area. However, I would be interested to know when looking at a property investment what is the most important element for you, the actual house or the area in which it is situated?”
Dead money?
For a company which is very cash conscious, efficient and utterly ruthless in its business dealings, why would Google acquire properties well before they are needed? Does Google fear there will be a shortage of office space in the short, medium and longer term or is this simply a step-by-step expansion in the area? The millions of dollars which have been spent on so far unoccupied real estate and office space could have been invested in the company creating a significant return if past performance is anything to go by.
We can only assume that Google believes the local real estate market will continue to push ahead, is determined to bank enough office space for the longer term and sees an eventual return when setup costs are compared to future business initiatives. Some experts are concerned about what might happen to the local property market if Google decides enough is enough?
Is the local real estate market dependent on Google?
When you bear in mind the vicinity of the properties Google has required in relation to so-called “Silicon Valley” it is perhaps not difficult to see why the company has cast its net a little wider. Prices in the centre of Silicon Valley certainly have a mind of their own and are very reminiscent of the London property market, the performance of which bears no resemblance to the overall UK market. That is not to forget that while Google is a major technology company it is just one of many in the Silicon Valley area. True, it is dominating the local real estate market at the moment but when Google backs off after fulfilling its requirements no doubt another technology giant will step forward.