Strategic Cost Considerations for Corporate Employers

Strategic Cost Considerations for Corporate Employers

The severity of COVID-19’s impact on industries, jobs and the workforce over the near and long term will depend on the duration of the pandemic and the medical solutions and government actions to combat the crisis.

Initial data already suggests which industries are being impacted the most and how the labor landscape might change over the long term. Corporations should be mindful of these impacts and thoughtful about how the shifting labor landscape informs their short- and long-term location strategies.

Through a series of articles, CBRE Labor Analytics will outline several key short- and long-term changes that likely will impact U.S. labor markets and the strategies employers can take in response to these changes.

Topics covered in this series include:

1. Anticipating a Changing Landscape in the Workforce: Industry Impact on U.S. Labor Markets
2. Location Strategy: Business Continuity & Operational Risk
3. Location Strategy: Strategic Cost Considerations for Corporate Employers

For many companies, the pandemic has caused a fundamental shift from operational growth to contraction and/or rationalization. Although it is unclear how long this shift will last, the market disruption has been increasing and echoes many of the challenges faced during the Great Recession. Unique impacts of this pandemic-related downturn include uncertainty over future space requirements and evolving workplace strategies. In addition to business and operational risk assessment, employers are focusing on cost containment, driven by falling revenues for many industries. As a result, many companies are rationalizing their portfolios and modifying their location strategies to maximize cost savings.

In this report, CBRE Labor Analytics outlines location strategies for companies seeking to reduce costs in this decelerating economic environment.

Strategic Cost Considerations for Corporate Employers

The economic disruption caused by COVID-19 has occurred at an unprecedented rate. In just eight weeks beginning in mid-March, the unemployment rate rose from a 50-year low of 3.5% to over 14.0%, with more than 38 million initial unemployment claims over nine weeks. The hospitality, restaurant and service sectors have been impacted the most. Figure 1.1 illustrates the sheer speed and depth of the pandemic’s impact on the job market relative to past recessions.

Figure 1.1: Historical Recession Impact on the Workforce

Percent Job Losses in Post WWII Recessions

Source: http://www.calculatedriskblog.com, CBRE Labor Analytics Research.

Many companies face extreme cost pressure as a result of social distancing measures put in place over the past few months. For many businesses, labor costs make up a large percentage of overall corporate costs—up to 85% for service and technology-oriented companies. As companies deal with tighter budgets and reevaluate their space needs, many are dusting off their location strategy playbooks from the Great Recession to find where they can access top-quality talent and location options for lower cost.