in the past three months, Dumbo move About 200 offices were downsized to storage units and about 100 more to smaller office spaces. That’s double what the New York City-based carrier did in the same period last year and multiples higher than it would have done before the pandemic.
The moving company has a front row seat to Widespread Cut costs before a recession, as companies try to do anything they can to avoid having to lay off workers. Giving up office space is one of the ways companies pull to reduce their costs. Some companies are getting rid of franchises that catch the eye, eg Meta’s free laundry servicewhile the more mundane are stored among them Creepy snacks And the Ditch the free coffee. Others are freezing hiring for new positions and suspending business travel. Many are taking a more serious look at their software licenses than they did earlier in the pandemic — even as more people are likely to be allowed to work from home. In other words, more people may get the option to work from home again, but this time they may be stuck with Microsoft Teams even if they prefer Zoom.
Of course, none of these cuts mean jobs are completely safe. There have been a number of tech celebrity hairdos this year, and more are to come. However, it is important to realize that the 140,000 technician layoffs This year is only a small part of total technical employment, which is in the millions. Notably, many of these layoffs followed a period of rapid hiring during the pandemic, while other industries have cut back.
For the economy as a whole, layoffs were near a historic low of less than 1 percent of total employment in October, according to the latest available. Bureau of Labor Statistics data. Meanwhile, there were an impressive 10.3 million vacancies. comp Fear of making the same mistake Many worked early in the pandemic: hordes of layoffs only to spend the next two years struggling to get rehired as the economy rapidly improved.
For now, instead of laying off workers, expect deep cuts to everything else—especially real estate and remote programs.
Back to the office, to face slack
Historically, companies have always cut back on real estate during recessions, even before remote work shifted office space from required to optional. The recession in the coming months could be particularly difficult for the commercial real estate market. This summer, the consulting firm Gartner It found that nearly three-quarters of CFOs wanted to reduce their organization’s real estate footprint by the end of 2022, the most of any kind.
These cuts are likely to set back companies’ plans to return to offices. So far, share days have been working from home It remained remarkably stableeven as many companies accelerate plans to return to the office in the summer and fall.
Companies that haven’t pushed hard to return to the office will be the most likely to cut back on real estate, said Rebecca Kehoe, a professor of human resource studies at Cornell University. But even companies that have already required employees to return to the office more often could cut back on office space, too.
“This may actually be the impetus organizations need to open up to a more remote approach,” Kehoe said. She added that telecommuting has the dual benefit of helping companies retain employees and possibly alleviating their annoyance about not getting a raise, for example.
The size of major real estate discounts depends on the type, size and age of the company, according to Arpit Gupta, an associate professor of finance at New York University. For large conglomerates, real estate may be a small part of their spending, while for start-ups it may be a large expense.
“From their point of view, this is one of the essential expenses that they have to deal with, and if they can in fact eliminate it in a way that makes their employees happier than before, then it makes sense all around,” said Gupta.
Downsizing in real estate may be most significant in tech, both of which are facing the brunt of a potential recession and were better suited to remote working in the first place. For example, Meta recently announced on an earnings call that it was Spending $3 billion to get rid of leases This year and next, a move she hopes will save money in the long run. The company has expanded the remote work option to include all levels of employees in the company 2021. Of course, Meta has also turned into Layoffsby laying off 11,000 employees this month.
On the economy front, these cuts will certainly be significant, but fortunately for building owners, experts don’t expect these cuts to last forever.
Economic Consultants Unit of the Real Estate Services Company CBRE She expects job vacancies in the United States next year to rise by about 19 percent. Right now, they’re at a 30-year high of 17 percent. Julie Whelan, global head of occupiers thought leadership at CBRE, doesn’t think there are a lot of office space companies could reasonably cut.
“Companies have made so many cuts during the pandemic on space that they have to be really careful not to go too close during recessions,” she said.
Goodbye, corporate Zoom account
As companies continue their so-called digital transformation, they will rely more on software. But while program spending is expected to rise, it’s not happening as fast as it has been, and some regions will see cuts.
Gartner expects public IT spending to rise 5 percent Next year. Enterprise Technology Research (ETR) Foundation, which polls CIOs and other IT decision makers about their software spending decisions, and expects IT spending to rise about 4 percent this and next quarter, compared to the same quarter a year earlier (this estimate was down throughout the year). However, considering inflation is a massive one 7.7 percent In the past year, companies will have to be more choosy about the software they actually need.
The biggest way for companies to cut their spending on Internet technology is through consolidation, according to ETR data, with a third of organizations saying they do so. This usually means finding multiple software licenses that offer the same technology and eliminating one of them. In many cases, the decision will benefit big tech companies like Microsoft and Google, which offer a lot of different offerings—video conferencing, chat apps, spreadsheets, documents, productivity management, and cloud computing—under a single license.
“If you’re a Google Store, you’ll navigate to Google Enterprise Content Management in the Google Workspace,” said Erik Bradley, director of research at ETR. “But more often than not, large organizations already own the Microsoft 365 license, and since you already have it, you can use it, too.”
This means employees who have a license for the video conferencing tool Zoom in He may soon be making calls through Google Meet, for example, if they already pay for his email service. Or they might get rid of Twilio communications software if they already have a license to Microsoft, which has a competing product. Or they may lose Dropbox if they already have file sharing through AWS. Companies feel that they will not jeopardize their business because they will still have a version of their software – perhaps just not the version that employees prefer.
These cuts are sort of a reversal from what we saw earlier in the pandemic, when CEOs were more generous about programs that facilitated remote work collaboration and productivity, according to Alexander Pant, research head for chief financial officers at Gartner.
“They chose several different collaboration tools. Different regions and leaders had blank checks with the programs,” he said. “Now they are looking forward to unification.”
Consolidation is unlikely to occur if the program is seen as integral to the continued operation of companies or if it is in an area in which companies are afraid to take risks. The main areas where spending growth is higher are in cybersecurity and data analytics, according to ETR. Sales related software is also relatively safe. This necessarily means that some things will fall by the wayside.
“CFOs really prioritize programs that drive sales in the near term rather than long-term innovations and new product development,” said Pant.
The severity of the overall cuts in corporate spending will depend on the severity of the recession and how long it lasts. For now, though, people’s jobs are relatively secure, while the talk of cutting costs is more about real estate and technology iteration than people.
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