After years of offloading vast amounts of its real estate portfolio, Microsoft is reversing course with a more than $330 million Silicon Valley deal that underscores the tech giant's long-term commitment to physical space.
The company finalized a deal this week to purchase one of its office campuses in Mountain View, California, according to documents filed with the Santa Clara County Recorder’s Office, marking one of the region's largest real estate deals so far this year and providing the tech-concentrated area a boost after an extended period of record occupancy losses.
Microsoft, based in Redmond, Washington, has been leasing the 33.3-acre research and office hub at 1045 La Avenida St., which spans about 634,000 square feet, for the past several years. The company's decision to purchase the property not only transitions its role from tenant to landlord, but confirms its long-term commitment to the greater San Francisco Bay Area.
Mission West Properties, a local Silicon Valley development and investment firm, was the seller in the all-cash deal.
The software giant has used the Mountain View campus as its primary office hub in the Silicon Valley area for more than half a decade. The campus can accommodate up to 3,000 employees, and is connected to other properties Microsoft has purchased in and around the region in the years leading up to the COVID-19 pandemic.
Microsoft did not immediately respond to CoStar News' requests for comment.
Time for a turnaround
Microsoft and other tech companies have aggressively shrunk their real estate portfolios over the past several years as many struggled to readjust after a pandemic-fueled growth spurt that eventually crashed back to normalized levels.
Competing tech companies such as Amazon, Meta and Alphabet's Google have collectively shed hundreds of millions of square feet of office space they no longer used, needed or wanted to pay for, driving vacancy and sublease levels to record highs as many looked to quickly offload the space.
The national office vacancy rate, fueled by companies offloading record amounts of space and adjusting to shifts following the pandemic's onset, has climbed to nearly 14%, according to CoStar data. Tenants collectively handed back upward of 65 million square feet last year, boosting the total to more than 180 million square feet of move-outs since the start of 2020.
What's more, the leases that are being signed these days have shrunk considerably, averaging about 20% smaller than their pre-pandemic averages.
Given its role as one of the most concentrated tech hubs in the world, Silicon Valley's office market has been especially hard hit by the industry's widespread downsizing and weakened demand. While leasing has rebounded slightly after hitting a post-pandemic trough last year, the regional availability rate is stuck at about 25%, according to CoStar data, and rents have fallen from their pre-pandemic highs of more than $80 per square foot to the current average of roughly $68 a square foot.
Microsoft owns or leases about 28.5 million square feet of office space around the world, according to the data, a significant portion of which is concentrated in and around the Silicon Valley area.