Reducing or keeping office expenses flat by fitting more workers into the same office space — sometimes growing in place — is emerging as a longer-term fiscal bright spot for finance chiefs struggling with runaway inflation on many fronts. many fronts.
The opportunity presents itself as companies adopt a wide range of approaches to real estate when executing return-to-work plans. Last week, Alphabet’s Google flagged an apparently contrary move in a blog post announcing plans to invest about $9.5 billion in offices and data centers across the United States, while d Others like Salesforce.com Inc. have sought to take advantage of the accelerated shift to remote work during the pandemic. moving towards sublet large blocks from space.
But no matter what form their fingerprints take, many companies offer their workers hybrid flexibility type, which may eventually allow them to support more workers in the same space. Jhe property services firm Cambridge Innovation Center (CIC), which offers flexible office and coworking space, is considering a variety of setups ranging from a person-to-desk ratio to a 4:1 ratio and even has a 60-person business sharing an office area with five desks, a spokesperson said.
the Cambridge, MA-based The company is also receiving more and more inquiries about the range of flexible office leases it offers, including one-month terms from larger companies that were previously leaning towards multi-year leases on more large offices, according to Camilla Jensen, CIC’s chief financial officer. The seismic shifts in how and where people work continue to evolve, but she expects to see more executives take steps to realize real estate savings this year.
“Over the next two months, we’ll all know more about how businesses will evolve and how CFOs and executives will make decisions to save money,” Jensen said. flexibility.”
Although demand varies by market, it is still largely a buyer’s or renter’s market. U.S. office vacancy rates rose for their tenth consecutive quarter to 17.5% in the first quarter, from 15.8% in the prior year period, and effective office rents fell 13.3% since the peak in the second quarter of 2020, according to a Cushman & Wakefield Report. However, vacancy rates are expected to peak in many markets mid-year as demand strengthens and year-over-year rent declines moderate, the report said.
Invest in people, not square footage
At executive search and consultancy firm Spencer Stuart, new chief financial officer Christine Laurens sees the potential for savings on property costs in the future as a welcome contrast to other growing expenses she faces, such as salary and technology increases. People are her company’s biggest expense, followed by real estate and technology, she said.
Like many companies, Spencer Stuart has been polling and getting clear feedback that its employees want flexibility, said Laurens, who thinks hybrid working will likely be the way forward for the company going forward. As such, she anticipates that the business will either need a little less space in the future or stay in the same space but grow. “My perspective is that I’d rather invest in our people and in training and development than in square footage,” Laurens said.
Meanwhile, at growing biotech company Axogen, CFO Pete Mariani briefly considered subletting office space to reduce the company’s real estate costs early in the pandemic. Instead, the company, which has more than 400 full-time employees, decided not to limit its growth for short-term savings by giving back space.
But at the same time, he doesn’t expect to need more space anytime soon, in part because the company launched a new back-to-office model last month that requires all workers to be in the office. three days a week from 9 a.m. at 3 p.m. With that, Mariani expects to be able to accommodate more people, delaying the need to expand beyond its two Florida headquarters campuses, one of which is in Tampa, Fla.
“We would definitely see, in several years, the need to grow,” Mariani said. “Now maybe that time for us to grow is even longer given the flexibility we create with those working hours.”
Other companies, like Blend Labs, a San Francisco-based provider of mortgage and loan software to financial institutions, have already started to save on real estate costs as fewer people work from their offices. The company operates primarily with a “remote-first” model, offering flexibility with a few exceptions that allows employees to work from home or the office, according to a spokesperson.
This has allowed Blend to accommodate many more employees in its 47,400 square foot headquarters in San Francisco, even though the company’s headcount has grown significantly in recent years, according to Blend chief financial officer Marc Greenberg. . This is especially important now that the company is looking carefully at its costs in the face of headwinds from the volatile economy and rising interest rates that are disrupting the mortgage market.
“We try to be as thoughtful about our costs as possible,” Greenberg said. “On a relative basis, we’re saving a lot of money on installation costs.”