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Microsoft (MSFT) to Downsize Office Space With Redmond Exit

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Microsoft (MSFT - Free Report) recently announced that it is planning to downsize its office space by subleasing all six buildings at Millennium Corporate Park in Redmond. CBRE, a commercial real estate firm, is marketing this property, which will be available from June.

Microsoft took this decision to support its ongoing efforts to cut costs due to slowdown in customer spending. In the first half of April 2023, Microsoft’s CEO, Satya Nadella, announced plans to lay off 10,000 employees.

Millennium Corporate Park, located at 18200-18700 NE Union Rd. in Redmond, OR, was purchased by Vanbarton Group, a New York-based company, for $217 million in December 2020. TPG Group was the seller and major tenants include Microsoft, Honeywell and Nintendo.

Microsoft currently occupies most of the space in Millennium Corporate Park. CBRE is marketing 497,193 square feet out of the 537,000 square-foot campus. This plan was followed by Microsoft’s earlier plans to reduce office space by 1.7 million square feet by not renewing leases in Bellevue and Issaquah. Microsoft has also put the development of campus expansion project on hold.

Tech Giants Downsizing Office Space

According to an industry market report by Kidder Mathews, the first quarter of 2023 has seen a spike in regional vacancy from 10.52% in the previous quarter to 11.21%. This indicates a jump of 69 basis points (bps). The office market has experienced a rise in vacancy for 11 of the previous 13 quarters, with an increase of 542 bps.

Shares of Microsoft have gained 0.4% in the past year against the Zacks Computer and Technology sector’s decline of 5.4% in the same period.

The Zacks Consensus Estimate for MSFT’s 2023 earnings is pegged at a profit of $9.30 per share, indicating year-over-year growth of 0.98%. The Zacks Consensus Estimate for third-quarter 2023 revenues is pegged at $50.95 billion, indicating year-over-year growth of 3.22%.

This Zacks Rank #3 (Hold) company is looking to cut costs by laying off employees and downsizing office spaces. This cost cutting is a result of hiring more than necessary people in the previous years. (AMZN - Free Report) , Meta Platforms (META - Free Report) and Salesforce (CRM - Free Report) are also doing the same to cut costs. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Amazon is planning to sub lease around 10 to 30 million square feet in the coming year. It has also announced the layoff of 18,000 employees. It has already decided not to renew a sizable lease in Seattle’s West 8th office tower.

Meta laid off 11,000 employees in the first half of April and encouraged its employees to adopt a hybrid work culture. Meta did not renew leases with 30 and 55 Hudson Yards, which span across 250,000 square feet.

Salesforce has been cutting down office space throughout 2022. It recently announced sub leasing of 200,000 square feet of Tableau Software office. It laid off more than 7,000 employees in January 2023. It is also planning to shut offices in certain markets altogether.


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