When firms say they may minimize budgets first in a softer economic system

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

Now that the economy is cooling and at least flirting with recession, real estate will be a major drain on corporate budgets.

That’s according to a new survey of more than 200 CFOs and CFOs conducted by Gartner in July. and announced Wednesday, revealing that “property/facilities management” was the company function most likely to see budget cuts.

“Given that 72% of CFOs want to reduce their organization’s real estate footprint by 2022 end, you can expect that facilities management is going to cut budgets,” said Marko Horvatas, vice president of practice research at Gartner Finance. survey notice.

Many companies have already reallocated real estate budgets to reflect the new work paradigm. Take West Coast finance startup Brex, which now has roughly 45% of its workforce fully remote. The company has four office centers, but after learning that only 10% of employees would enter an office if it was optional, Brex was able to convert real estate dollars.

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

Narayani said about one-third of the company’s previous real estate strategy spending has gone into the company’s new external strategy, while the rest has been used to pay for four office spaces and other co-working spaces. The real estate budget also went toward travel, talent development, diversity and inclusion efforts “and anything that improves the employee experience,” he said.

According to a Gartner survey, the safest budgets for white-collar workers are IT and sales.

Forty percent of CFOs say they will increase IT budgets in the next 12 months, which is consistent with a previous Gartner survey and a common theme among the C-suite. technology is a “necessary” investment in any economic environmentincluding even recession.

Technology is also seen as a deflationary force, making it even more important to invest in times of high prices. A Gartner survey shows that a quarter of CFOs say automation will help them fight inflation.

Finance, in particular, is a function where automation is increasing, and according to a Gartner survey, it is the next area most vulnerable to budget cuts. Twenty-two percent of finance leaders say reducing their responsibilities is their second goal after real estate (35%).

How CFOs spend in an inflationary world is a much bigger topic than just where real estate budgets go or how companies selectively mitigate economic slowdowns.

A recent Morgan Stanley study suggests that price pressures will accelerate investment in automation and other productivity-enhancing technologies, which have been described as “deflationary tools.”

Labor, Supply Chain and Energy Inflationto make technologies focused on cost reduction and productivity more valuable,” according to the Morgan Stanley report.

It can also affect the investor relations strategy. As the era of cheap money ends and the cost of capital rises, more companies will focus on capital investments that reduce costs, rather than “prioritizing corporate buyouts and other financial engineering activities that are easier to carry out in a world of negative real interest rates,” Morgan Stanley research group wrote. .

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