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January 20, 2009 12:06 PM

Microsoft slows some real-estate expansion amid bleak economy

Posted by Benjamin J. Romano

Microsoft's rapid facilities expansion in the Puget Sound area is slowing as the company navigates the bleak economy.

A source provided details of a plan including changes to construction projects, which this person said was approved by Microsoft Chief Financial Office Chris Liddell in December. The person asked for anonymity while sharing internal details.

The plan calls for a three-year delay of all construction projects, with the exception of Building 111. This apparently refers to new construction, as Microsoft is planning to complete the major West Campus expansion it embarked on in 2006, with some buildings ready for occupancy as early as this spring.

Microsoft spokesman Lou Gellos said the company was limited in what it could say because it is in a "quiet period" ahead of its second-quarter earnings report on Thursday.

"Like any well-managed business, we routinely check our assumptions and planning needs against our assessment of the economic environment," he said in a statement. "As part of this process, which we undertake quarterly, we look at many scenarios and options. ... In light of the economic situation, we will also delay some planned construction on the north part of our campus."

Seattle P-I reporter Joe Tartakoff reported more details on the plan, including that the company will allow some of its leases to expire and that one facilities planning scenario expects Microsoft employment growth to be flat for the 2 1/2 years.

It's not surprising to see the company reining in its real-estate spending given its already announced plans to cut total operating expenses in the current fiscal year by $400 million to $500 million through slower hiring, reduced capital spending and cuts to travel budgets and vendor services.

Gellos, in his statement, suggested the lease expirations are the result of careful planning as the company's West Campus expansion comes on line.

"I can confirm that as some leases expire, we will not renew them. It was our plan all along to move the people in many of those buildings to the new construction that is nearing completion on campus and in Bellevue, and to our Westlake/Terry facility in Seattle."

Indeed, Microsoft Entertainment and Devices Division President Robbie Bach said in an interview earlier this month that he was looking forward to completion of the West Campus expansion to bring his division together in one place.

"We'll be moving in there over the course of the spring. All you have to do is drive by and realize that some of the buildings are further along than others. That's sort of the nature of the way these things work, so we'll start moving in over the spring.

"I think it's exciting and it's important. Certainly, we can live and work in a world in which we're spread out, but proximity does make things easier. And the ability to get people together, having most of the team on one site will matter and will help us."

For background on the campus expansion and Microsoft's Puget Sound area real-estate footprint, see:

Microsoft campus expands, transforms, inside and out, November 2007

Microsoft in Bellevue, April 2007
Microsoft expands real estate in Seattle, September 2007
Microsoft's "Touchdown Space" in South Lake Union, April 2008

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