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How CFOs are reassessing their real-estate footprint in the face of the economic downturn

With the economic landscape becoming increasingly uncertain, adopting a hybrid work model is a clear win for CFOs and employees alike, says Mark Dixon, founder and CEO at IWG

How CFOs are reassessing their real-estate footprint in the face of the economic downturn

Stanford University professor, Nicholas Bloom, widely recognised as one of the world’s leading economic experts and visionaries on the future of work, couldn’t have summed up the value of hybrid working any better than in a recent interview with Time magazine:

“As an economist, I’d point out that firms don’t do things that lose them money. They do things that make them money. That’s why every firm just about out there is doing hybrid, because it’s such a no-brainer to increase profit.”

He’s spot on – and in total agreement with the findings of a recent IWG survey among 250 CFOs. It revealed that 80% of respondents expect hybrid working to be an important cost saver as they get their businesses ready for the recession, which over 90% believe is on the way.

For them to feel this way is unsurprising: with more people working remotely, unless they resize their real-estate footprint CFOs will be paying for an underused resource that does nothing to increase productivity. And, with rising energy costs and inflationary pressures, it’s getting more costly all the time. So it’s no shock that the findings of our CFO survey show that nearly all (97%) are already either implementing or planning to implement annual cost-cutting measures of more than 10%, while 87% are saying they regard hybrid working as a more affordable business model.

Critically, in a message to landlords everywhere, 65% of them are planning to reduce their annual facility spend by a minimum of 10%. In parallel, close to three-quarters (74%) of Fortune 500 CEOs have told Fortune magazine that they’re planning to reduce their owned office space. And a recent survey in the US by workplace software business Robin suggests the cuts could be deep, with 60% of executives saying they plan to reduce their owned office space by a minimum of 50%.

Productivity increases

The switch to hybrid not only directly addresses multiple cost issues; it simultaneously delivers a boost to productivity that in my view is thanks to more engaged employees working in the way that suits them best, without all the expense, stress and pollution of the daily commute. Professor Bloom also talks about productivity increases delivered by happier employers who see hybrid working as being the equivalent of a 7% to 8% pay rise.

When distilled to its core, all this data tells me companies everywhere are waking up to the need to become much more efficient in their use of office space. The moment is singularly appropriate for them to be doing so. Not only are the dark clouds of economic gloom gathering. They’re doing so just as businesses are considering their experience of the COVID-19 pandemic and how, counter-intuitively for many, new ways of working emerged that often helped them not just to survive, but to actively thrive.

Gaining momentum

I’ve actually been saying for years – since 2002, in fact – that I believed global capitalism would eventually move to a hybrid working model, with people being given the flexibility to get their work done when and where they’re most productive. It’s taken some time to gain the momentum I was anticipating, but now that it’s here there’s no turning back.

And it’s no longer just about plans or intentions. It’s already changed the actions CFOs are taking when it comes to managing the property footprint, with a full half of those in our recent survey telling us they have already opted for short-term leases or shared workspaces.

The reasoning is simple: this approach gives them the flexibility to scale up or down quickly without being locked into lengthy contracts. And it’s also a no-brainer when it comes to profit, with an independent Global Analytics survey recently showing that hybrid working can save organisations an average of more than $11,000 per employee per year.

Savings of that scale ramp up dramatically. It’s estimated that since Cisco went hybrid five years ago it has saved around $500m by cutting around half of its real-estate footprint.

But, particularly against such a troubled economic backdrop, the wider benefits extend far beyond even such a dramatic impact on the bottom line. Hybrid working is also widely seen by employers as a highly effective way of engaging and retaining their best talent, by delivering the work/life balance so many people are looking for. Recent research shows, in fact, that 77% of employees see having access to an office close to home as a must-have for their next job.

The changing geography of work

Just as important, the hybrid model is also emerging as an effective means of widening talent pools, providing business leaders with the ability to recruit from a much wider geographic and diverse pool, which in many cases is also more cost effective. Research shows this is an increasingly significant consideration amongst CFOs as they seek to reduce workforce costs.

We’ve already seen the cost savings that are achievable by reducing the corporate real-estate footprint. We’re also about to see a boom in offshore recruitment, as businesses actively seek to leverage hybrid working to attract the planet’s best talent on the most favourable and competitive terms.

That is just one reason why flexible workspaces are springing up in communities of every size across the world, placing advanced facilities close to where people actually spend their lives. In short, hybrid working is making the restrictions of geography redundant, just as it is the daily commute.

It’s for this reason that we at IWG are committed to opening 1,000 new spaces across the world in the next year alone. The majority are set to open in rural and suburban locations close to where people want to be.

CFOs clearly recognise that it’s more cost-effective to reduce the space they take in capital cities and other expensive central locations. So instead, they’re increasingly giving their employees stipends or memberships that allow them to access and use local co-working or office spaces. That’s why most new locations in our network are in small towns: in the UK, think the likes of Gerrards Cross, Chippenham, High Wycombe, Redhill and Evesham. It’s happening globally too, and we’re also opening in US towns such as Kodak, Tennessee, which has a population of just 10,000.

So, something very big, and very important, is happening in the world of work as the hybrid model unarguably delivers a win-win for the CFOs and the employees of businesses everywhere. Quit rates are down 35% as happier, more engaged people boost productivity, all while CFOs simultaneously cut unnecessary expense from their bottom lines.  And as we navigate an increasingly uncertain economic landscape, gains like these will only get more important, more valuable, and more difficult to ignore.

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