UPDATE 5-Lendlease, Google end development deals for $15 bln San Francisco Bay Area projects

(Adds more details on progress on the project in paragraphs 5-7)

By Himanshi Akhand

Nov 3 (Reuters) - Lendlease Group and Alphabet's Google are mutually ending development services deals for four master-planned districts worth $15 billion in the San Francisco Bay Area, the Australian company said on Friday, as developers continue to exit California's real estate market.

Lendlease bagged the contract from Google in 2019 to develop the residential and retail space in Sunnyvale, San Jose and Mountain View, which could ultimately bring around 15,000 new housing units to the region.

California's commercial real estate market is one of the hardest hit globally as remote working has reduced the demand for office space amid declining property values, with companies like Unibail-Rodamco-Westfield, owner of one of San Francisco's biggest shopping centres, also walking away.

Under the project, Lendlease was to develop up to 15 million square feet of residential, retail and hospitality space and Google would develop office space.

"We've been optimizing our real estate investments in the Bay Area, and part of that work is looking at a variety of options to move our development projects forward and deliver on our housing commitment," said Alexa Arena, senior director of development at Google.

As of June-end, 12,900 of the planned housing units were approved for development in San Jose and Mountain View, according to Google.

A spokesperson said the company is still looking to work with both developers and capital partners to move the Bay Area developments forward.

Earlier this year, Lendlease also paused its 47-storey Hayes Point project in central San Francisco, its largest investment in the Americas, looking to line up tenants or find a co-investor.

Lendlease said it will remove the San Francisco Bay project, which was expected to commence construction in fiscal 2026, from its development pipeline.

"While market expectations for the project had deflated over the past ~12-18 months, the change is negative for medium term (FY26-28) earnings," analysts at UBS said.

Lendlease retained its forecast for fiscal 2024, with core operating return on equity at the lower end of its 8%-10% range.

(Reporting by Himanshi Akhand in Bengaluru; Additional reporting by Ayushman Ojha; Editing by Sonia Cheema, Rashmi Aich, Varun H K and Sohini Goswami)