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It’s no secret that companies are reducing their real estate footprint. Even companies are still committed to working inside the office, but embracing a hybrid model, requiring less square footage and more use of shared office space.
Now as the economy cools down, and at least flirts with entering a recession, real estate will be the focus of budget cuts for companies.
That’s according to a new survey of more than 200 CFOs and CFOs conducted by Gartner in July and released Wednesday, which revealed that “property/facilities management” was the company’s job most likely to face budget cuts.
Marco Horvat, vice president, research practice at Gartner Finance, said in the survey release.
Many companies have already reoriented real estate budgets to reflect the new business model. Take, for example, West Coast finance startup Brex, which now has nearly 45% of remote employees. The company has four office hubs, but after learning that only 10% of workers would come to the office if it was voluntary, Brex was able to repurpose his real estate dollars.
“It turns out to be a much better experience for us because the cost of real estate has been so high, and these markets are so expensive,” Neil Nariani, chief operating officer of fintech firm Brex, told CNBC recently.
Naryani said nearly a third of the cost of the company’s previous real estate strategy was put into the new company’s off-site strategy, with other parts of it being used to pay for the four office spaces and other co-working spaces. He said the real estate budget was also earmarked for travel, talent development, diversity and inclusion efforts, “and towards anything else that makes the employee experience better.”
For white-collar workers, the departments with the safest budgets, according to a Gartner survey, are IT and sales.
Forty percent of CFOs say they will increase IT budgets in the next 12 months, a finding that aligns with previous Gartner survey work and with the C-suite’s overall theme that technology is a “must” investment under any economic conditions, including That’s an economic recession.
Technology is also seen as a deflationary force, which makes it even more important to invest in at a time of rising prices. A Gartner survey found that a quarter of CFOs say automation will help them fight inflation.
Finance, in particular, is a function in which automation is increasingly being used, and according to a Gartner survey, it is the other area most vulnerable to budget cuts. Twenty-two percent of finance leaders say cuts from their jobs are a goal, second only to real estate (35%).
How CFOs spend in an inflationary world is a much bigger topic than just where the real estate budget is redirected or how companies selectively cut as the economy slows.
A recent research article from Morgan Stanley argues that cost pressures will accelerate investments in automation and other productivity-enhancing technologies, which it describes as “definition enablers.”
Employment, supply chain and energy inflation “Make technologies focused on reducing cost and productivity more valuable,” the Morgan Stanley report said.
This could also have implications for your investor relations strategy. With the era of cheap money ending, and the cost of capital rising, more companies will focus on cost-reducing capital investments rather than “prioritizing corporate buybacks and other easy-to-follow financial engineering activities in the realm of negative real interest rates,” the Morgan Stanley research team wrote.