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Where companies say they will cut spending first in a weaker economy

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

With the economy cooling and at the very least flirting with entering a recession, real estate will be a focus of austerity for businesses.

That’s according to a new survey of more than 200 CFOs and financial executives, conducted by Gartner in July and published Wednesday, which found that “real estate/facilities management” was the business function most likely to face budget cuts.

“As 72% of CFOs want to reduce their organization’s real estate footprint by the end of 2022, facility management is expected to consider budget reductions,” said Marko Horvat, vice president of research in the Gartner Finance practice, in a release on Monday. the survey.

Many companies have already adapted their real estate budgets to the new work paradigm. Take the West Coast financing start-up Brex, which now has about 45% of its employees completely remote. The company has four office hubs, but after learning that only 10% of employees would come to an office if made optional, Brex was able to reuse real estate dollars.

“It turns out to be a much better experience for us because those real estate costs were very high and those markets are very expensive,” Neal Narayani, chief people officer at fintech firm Brex, recently told CNBC.

Narayani said about a third of the cost of the company’s previous real estate strategy has gone into the company’s new off-site strategy, while other parts of that are being used to pay for its four office spaces and other co-working spaces. The real estate budget was also spent on travel, talent development, diversity and inclusion, “and anything else that makes the employee experience better,” he said.

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

Forty percent of CFOs say they will increase IT budgets over the next 12 months, a finding consistent with previous Gartner surveys and with the overall C-suite theme that technology is a “must” investment among all economic conditions, including even a recession.

Technology is also seen as a deflationary force, making it even more important for investment at a time 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 of increasing automation, and according to the Gartner survey, this is the other area most vulnerable to budget cuts. Twenty-two percent of finance leaders say cuts in their own position are a target, after real estate (35%).

How CFOs spend in an inflationary world is a much bigger topic than just where the real estate budget is diverted or how companies selectively cut spending when the economy slows.

A recent Morgan Stanley research paper states that cost pressures will accelerate investment in automation and other productivity-enhancing technologies, which it described as “deflation promoters.”

Labor, supply chain and energy inflation “technologies that focus on cost reduction and productivity more valuable,” according to the Morgan Stanley report.

This can also affect the investor relations strategy. With the end of the era of cheap money and higher cost of capital, more companies will focus on capex investments that reduce costs rather than “prioritising company buybacks 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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