Where companies say they’ll cut budgets first in a softer economy

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It’s no secret that businesses are reducing their real estate footprint. Even companies still committed to office work, but adopting a hybrid model, need less square footage and increased use of shared office space.

Now that the economy is cooling, and at least flirting with entering a recession, real estate will be at the center of budget cuts for businesses.

That’s according to a new survey conducted by Gartner in July and released Wednesday of more than 200 CFOs and CFOs, which found “real estate/facility management” to be the most likely business function to deal with budget cuts.

“Given that 72% of CFOs want to reduce their organization’s real estate footprint by the end of 2022, expect facilities management to consider budget cuts,” said Marko Horvat, vice president. -president, research within the Gartner Finance practice, in a statement about the investigation.

Many companies have already reoriented their real estate budgets to reflect the new work paradigm. Take West Coast financial startup Brex, which now has around 45% fully remote employees. The company has four office centers, but after learning that only 10% of workers would come to an office if it became optional, Brex was able to repurpose real estate dollars.

“It turns out to be a much better experience for us because the cost of real estate was very high and these markets are very expensive,” Neal Narayani, chief human resources officer at fintech company Brex, told CNBC recently.

Narayani said about a third of the cost of the company’s previous real estate strategy was invested in the company’s new offsite strategy, with other parts of that cost being used to pay for the four office spaces and other coworking spaces. The real estate budget was also spent on travel, talent development, diversity and inclusion efforts, “and anything that enhances the employee experience,” he said.

For white-collar workers, the departments with the safest budgets, according to the Gartner survey, are IT and sales.

Forty percent of CFOs say they will increase their IT budgets over the next 12 months, a finding consistent with previous Gartner survey work and with the C-suite’s overall theme that technology is an investment” indispensable” in all economic conditions, including even a recession.

Technology is also seen as a deflationary force, making it even more important for investing in an era of high prices. The Gartner survey finds that a quarter of CFOs say automation will help them fight inflation.

Finance, in particular, is a function in which automation is increasingly used and, according to the Gartner survey, it is the other area most vulnerable to budget cuts. Twenty-two percent of finance leaders say cuts to their own function are a target, just behind real estate (35%).

How CFOs spend in an inflationary world is a much bigger topic than just real estate budget redirection or how companies selectively cut back as the economy slows.

A recent research paper from Morgan Stanley argues that cost pressures will lead to accelerated investment in automation and other productivity-enhancing technologies, which it described as “facilitators of deflation.”

Labor, supply chain and energy inflationmake technologies focused on cost reduction and productivity more valuable,” the Morgan Stanley report states.

It may also have ramifications for investor relations strategy. With the era of cheap money coming to an end and a higher cost of capital, more companies will focus on cost-reducing capital investments rather than “prioritizing buyouts.” ‘businesses and other financial engineering activities that are easier to pursue in a world of negative real interest rates,'” the Morgan Stanley research team wrote.

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