Under the terms of the agreement, Google and Lendlease will work together for the next 10 to 15 years to redevelop the tech firm's land holdings in San Jose, Sunnyvale and Mountain View into mixed-use communities.

Investor reaction was strong with the share price rising 5.25 per cent to $14.84 on Thursday.

Lendlease's chief executive Americas, Denis Hickey, said the two companies had been in discussions for the past two years on the tech giant's $US750 million land bank in the Bay Area.

"We pulled the deal together over the last six months," he said.

"The size of this project is material, with Google taking up the office component and Lendlease developing the remaining retail, residential and hospitality components.

"We see this as a partnership of like-minded and culturally-aligned companies that want to create great places for innovation, living and working, in harmony."

Mr Hickey said the residential component of the deal means at least 15,000 additional homes will be developed.

"The creation of new residential units is a high priority for the Bay area, given the region's limited land, increasing cost burdens of development, length of permitting and approvals, financing, escalation and uncertainty of construction costs," Mr Hickey said.

It is expected the apartments will be used by Google staff, but there are no restrictions on who buys or leases the properties.

The deal comes as Google faces pressure to alleviate the impact of its rapid growth, particularly as it plans a mixed-use campus in downtown San Jose where 15,000 to 20,000 of its employees would work.

The development, which could start as early as 2021, will boost Lendlease's global project pipeline from $74.5 billion to about $100 billion over the next few years and further strengthen its relationship with Google. Lendlease is building the tech giant's European headquarters in London, due to be finished in 2021.

It also worked with Google on the mooted Australian headquarters at the White Bay Power Station site in Sydney's own bay area, that was discontinued in 2017.

It is understood Google is now reviewing a potential 90,000 square metre redevelopment site at the back of Sydney's Central railway station to add to its offices at Pyrmont, Sydney.

David Radcliffe, vice president real estate and workplace services at Google, said Lendlease had a "wealth of knowledge and expertise in residential, retail, and mixed-use developments".

In addition, Google will establish a $250 million investment fund so that it can provide incentives to enable developers to build at least 5000 affordable housing units across the market.

Credit Suisse analyst Paul Butler said while Google is retaining development of office space in the precinct, "there is likely to be construction opportunities for Lendlease, similar to its arrangements with Google in London".

"We think benefits from the deal are likely to start coming through in 2020 for Lendlease," Mr Butler said.

Macquarie Equities real estate analyst Rob Freeman said Lendlease had a "strong pedigree in residential build to sell apartments and detached homes, build to rent and affordable/social housing".

"Lendlease remains a key company in the real estate investment trust space. Whilst risks remain on engineering and services, we see value. Being able to solve key issues around housing affordability is a unique competitive advantage," Mr Freeman said.

He said Lendlease would be developing the capital structure for the project, which could include discussing potential investments by global pension funds and sovereign wealth funds which have invested in the company's development projects in the past.

Mr Butler said while the Google deal was very positive, investors would be looking for an update on exit options from the troubled engineering construction business.

Lendlease reports its full-year results on August 19.