Budgeting

Office space budgets are going toward reimagining the workplace

While lease budgets may be slashed by hybrid work, office budgets don't necessarily need to be cut drastically.
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Andrey Popov/Getty Images

· 4 min read

Companies large and small are grappling with the “where” of their work, since many employees who got used to working from home during the pandemic lockdowns are balking at a full return to the office. And while some companies haven’t offered a choice between remote and in-office work, others have instead decided to cut some operational costs and let workers decide.

Hybrid is in, Scott Dussault, CFO of human-capital management software firm Workhuman, told CFO Brew. “You had employees spend a year and a half changing their work habits, changing the way they were productive,” he said. But now, employers are looking to cut costs in a tough economy, but also want employees back in the office. A split between in-office and remote-work offers needed balance, Dussault said.

But the CFO and the finance team need to closely scrutinize which option makes the most sense for the company’s bottom line, and whether getting rid of their office spaces or reducing the square footage makes the most financial sense over the long term.

Many companies are clearly trying to figure out the best solution for their organization. This summer, Chevron announced it would be downsizing its 92-acre Bay Area office space and relocating some employees to Houston, the company’s headquarters. Exxon Mobil is reportedly looking to lease or sell office space at its main company offices in Houston, according to the Wall Street Journal. Energy company CLEAResult said it was ditching the big office space as well, downsizing to reflect new working conditions. Voya Financial, a New York City-based insurance company, downsized by 111,000 square feet to accommodate a hybrid workforce.

Other companies have just let their office leases lapse entirely. Airbnb CFO Brian Chesky announced in April that the company would be adopting a “live and work anywhere” policy for employees. Comcast, despite signing a 10-year lease agreement in 2018, moved its 150,000-square-feet call center off its operational books, instead allowing call-center workers to be fully remote.

Getting out of office spaces hasn’t been exactly cheap, however. Airbnb took a $113 million one- time hit on getting out of its space. But, Chesky wrote, “If we limited our talent pool to a commuting radius around our offices, we would be at a significant disadvantage.” Facebook parent company Meta also is spending nearly $3 billion to reduce its office space, as CFO Brew reported earlier this month. And in August, Pinterest said it paid $89.5 million to get out of its lease for 490,000 square feet of San Francisco-area office space that had yet to be constructed.

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But outside of the initial lease violation fees, companies could be saving money long-term by appealing to a wider workforce; the cost of losing an employee due to location could be greater than simply operating an office space. More than half—64% of employees—said in an April survey by ADP that they would consider quitting if asked to return to an office full time. According to the Society for Human Resource Management (SHRM), “direct replacement costs can reach as high as 50%–60% of an employee’s annual salary,” and replacing an hourly worker costs a company $1,500 on average.

While companies are able to save a sizable portion of expenses by reducing office spaces, it doesn’t necessarily mean that they are now sitting on a huge surplus, Dussault told CFO Brew. Those who have kept their office spaces are reimagining the way a workspace should look.

“We may be taking less square footage, we will be taking less overall floor space, but we’re now redesigning or rethinking what the workspace should look like, making it more collaborative,” he said.

According to the McKinsey Talks Talent podcast, while retailers have metrics such as foot traffic and customer engagement to evaluate their office space, there isn’t a similar metric for workplaces, so selling employees on the value of returning to an office isn't easy. Dussault likened the shift in office budget to now being a capital expenditure versus an operational one.

Interestingly enough, the hybrid workplace discussion has led to more CFO and CHRO collaboration, Dussault told CFO Brew, as company leadership attempts to develop a financially viable plan for facilities which also considers the employee experience. “It’s more than just…having ice cream in the break room or free lunches on Friday,” Dussault said.

While office-space budgets might not be cut altogether, and despite announcements of downsizing, the physical office will look different, Dussault said, even for employees who only come into a physical office space once a week, quarter, or year.—KT

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