Google (NASDAQ: GOOGL) isn't the type of company that tends to throw away money. And while its financial resources may be quite robust, it also has a lot of channels it could invest in, from new technology to talent.
Instead, Google is sinking billions of dollars into developing a new San Jose, California, campus. Once complete, it will feature an estimated 7.3 million square feet of office space, plus a cluster of surrounding shops and parks.
Real estate investors with properties in the vicinity of Google's planned campus may be jumping for joy. Once that project is complete, it will create many thousands of jobs in the area, which means rental demand will increase. And once that happens, local property values will likely follow suit.
Plus, existing businesses in the area are likely to benefit from an influx of Google employees. And if those businesses thrive, the landlords who rent them space won't have to worry about closures and vacancies.
But the news of Google's new office campus isn't just positive for investors with properties in that part of San Jose. It's also a great thing for investors with office REITs (real estate investment trusts) in their portfolios.
Office buildings aren't dead
For the past 15 months and counting, a large percentage of U.S. workers have been doing their jobs remotely. And the fear among office REIT investors is that that trend will have staying power even once the pandemic is far behind us.
Dumping office space and keeping remote work setups in place is good for employers. It allows them to save money by not maintaining expensive leases, and it also gives them more flexibility on who they can hire. After all, if proximity to a specific workplace is no longer an issue, talent pools open up.
But the fact that Google is investing a ton of its resources into a new campus should give office REIT investors a reason to breathe easy. After all, if any company were poised to uphold remote work, it's Google, a tech giant with the tools needed to allow workers to collaborate from afar. Instead, Google is affirming its belief that in-person collaboration works best by building out a new campus, and when Google acts, other companies tend to listen -- and follow in its footsteps.
Of course, this doesn't mean that remote work will disappear completely. Many companies are already making plans to introduce hybrid models that allow workers to do their jobs from home part of the week but also come into an office a few days a week. And those companies may indeed seek to downsize their office space and negotiate less expensive leases, which isn't the best news on the investor end. But it's far better than companies not returning to offices at all.
The bottom line
Google's latest move sends the message that office buildings are far from dead. And while leasing activity for the sector may still be sluggish, that could easily change, especially once the pandemic really becomes a thing of the past.