Google Parent Signals An End To Massive Real Estate Cutbacks

In a sign it could be winding down efforts to cut its real estate footprint, Google parent company Alphabet has dramatically slashed the amount of real estate-related impairment costs it is paying out to close offices.

Alphabet spent just $69M in impairment fees to break leases in the second quarter, down nearly 90% from the roughly $565M in charges it paid out over the first three months of the year, CoStar reported.

The Mountain View, California-based company has been in cost-cutting mode since the beginning of the year, laying off 12,000 workers and disposing of facilities in Silicon Valley and around the world, citing the need to “optimize our global office space.”

Now, though, the company could be shifting gears into expansion. Alphabet reported it earned $75B in revenue in Q2, a 7% year-over-year increase, while operating income rose 12% to about $22B — a turnaround for Alphabet, which had suffered declining growth due to a lackluster advertising market.

On a Tuesday earnings call, Alphabet CEO Sundar Pichai said the company would continue looking at ways to bring costs down but planned new investments, especially in its burgeoning artificial intelligence business.

"To take advantage of the AI opportunities ahead, we have been sharpening our focus as a company and investing responsibly with great discipline to find areas where we can operate more cost-effectively," Pichai said on the call.

"We continue to slow our expense growth and pace of hiring and are actively moving people to higher-priority activities within the company while we continue to optimize our real estate footprint for current and future needs."

Alphabet and other tech firms like Meta, Amazon and Twitter have shed millions of square feet of offices amid the pandemic, but the bleeding could be coming to an end, according to Chief Financial Officer Ruth Porat.

"We remain very focused on durably engineering our cost base, and the most evident to date have been actions we have taken to reduce the pace of our headcount growth," Porat said on the call, adding the company would continue "to moderate the pace of fit-outs and ground-up construction to reflect the slower pace of headcount growth."

But Alphabet plans new investments in data center construction to propel its AI growth, Porat said. The company expects “elevated levels of investment in our technical infrastructure” in the second half of 2023 and into next year. 

"We are setting the company up well to be able to invest for long-term growth, and we'll continue to execute on those," Porat said.