Microsoft plans to eliminate nearly 9% of its video game division in the latest of a series of corporate cuts among tech giants and other firms that have further eroded demand for office space.
The Redmond, Washington-based company expects to lay off 1,900 workers, including staff at Activision Blizzard, the video-game holding company Microsoft acquired a little more than three months ago in a deal valued at $69 billion.
The layoffs, which are also predicted to include staff on the company's Xbox and ZeniMax teams, are part of a larger plan to reduce “areas of overlap” identified since Microsoft absorbed Activision Blizzard and its 13,000 employees, Microsoft Gaming CEO Phil Spencer said in an internal memo obtained by several news outlets.
"As part of this process, we have made the painful decision to reduce the size of our gaming workforce by approximately 1,900 roles out of the 22,000 people on our team," Spencer said in the memo.
Microsoft did not immediately respond to questions from CoStar News about which offices would be affected by the job cuts.
Activision Blizzard has workplace hubs across North America, the United Kingdom and Europe. Its headquarters in The Pen Factory office complex in Santa Monica, California, span about 88,000 square feet, while its Blizzard Entertainment arm is based in Irvine, California.
Despite the cooling market for physical workstations across the United States, the Santa Monica building sold for $178 million in one of the highest-priced sales of 2023 in greater Los Angeles.
Microsoft, one of the largest U.S. corporations by total revenue, announced a year ago that it aimed to eliminate 10,000 jobs — nearly 5% of its workforce — by the end of September and consolidate real estate leases "to create higher density across our workspaces."
Office Challenges
While Microsoft's plans to shrink its Activision headcount likely won’t have an immediate impact on the tech giant's real estate portfolio, news of the latest layoffs is expected to further dampen its demand for additional office space.
Across the country, companies such as eBay, Wayfair, Amazon and Alphabet’s Google have collectively slashed thousands of positions since the beginning of the year. The full impact of those cuts is still to be determined, yet they coincide with an unprecedented push to prioritize profitable growth over riskier expansions, moves that so far have resulted in widespread cuts to corporate real estate portfolios.
“These layoffs coincide with a lot of other cost-cutting moves,” said Phil Mobley, CoStar’s national director of office analytics. “Some tenants are still paying rent for space even though attendance is far below the number of seats they have. Many of them are eager to save money on occupancy costs when those leases expire.”
A broadening pool of companies are scrutinizing their real estate needs and existing commitments, a focus that has resulted in smaller lease sizes and falling demand for space in some of the country's older buildings.
Microsoft, for instance, plans to vacate a combined total of 2.7 million square feet in greater Seattle's downtown Bellevue and the Interstate 90 corridor. The company is moving many operations to its headquarters in nearby Redmond, where it's completing a major expansion project.
Tenants collectively handed back more than 65 million square feet of office space throughout 2023, according to CoStar data, bringing the total to over 180 million since the start of 2020.
That far exceeds the reductions reported throughout both the Great Recession and the so-called dot-com bust several years earlier.
All told, low office attendance rates and slow employment growth has pushed the national office vacancy rate to a record high of more than 13.5%, according to CoStar data.
