Google’s Parent Company Expanding Its Technical Real Estate Footprint

Alphabet, the parent company of Google, is gearing up for anticipated artificial intelligence-fueled growth by increasing some of its real estate investments. 

After significantly paring back its office presence in the first half of the year, the company reported $8B in capital expenditures in the third quarter, a figure largely driven by Alphabet’s investment in technical infrastructure, including servers and data centers, Alphabet Chief Financial Officer Ruth Porat said on the company’s Q3 earnings call late Tuesday afternoon.

The company said more spending is on the way.

"We continue to invest meaningfully in the technical infrastructure needed to support the opportunities we see in AI across Alphabet and expect elevated levels of investment increasing in the fourth quarter of 2023 and continuing to grow in 2024," Porat said on the call.

While indicators are pointing upward on Alphabet’s outlay for technical real estate, its investments in office space are heading the opposite direction as the tech giant re-evaluates its need for physical space.

The company has paid about $650M this year in expenses related to shrinking its office footprint, CoStar reports. Most of that spending came in the first quarter, where the company paid out $565M in impairment fees to break leases. 

Alphabet has listed for sublease more than 1.4M SF of office space across several offices near its headquarters alone, CoStar reports. That figure doesn’t include the millions of square feet it has shed in other markets around the world.

“We remain focused on optimizing our real estate footprint, including how and where we work to reduce our expense growth,” Porat said on the earnings call.

Alphabet’s restructuring efforts mirror those at a slew of similar companies like Meta, Amazon and Salesforce, which have damaged office markets in major cities, CoStar reports. As a result, more large subleases are available and vacancy rates have increased, leaving some cities struggling to capture pre-pandemic momentum.