Buy-side Firms Opportunistically Downsizing, Cutting Costs

Buy-side Firms Opportunistically Downsizing, Cutting Costs

Buy-side firms are opportunistically downsizing, cutting costs as they are expecting to reduce on locations as well as office space.

According to a U.S. Institutional Equity Trading study by Bloomberg, 42% of the respondent firms attributed these changes to the COVID-19 pandemic. Firms are quickly learning to adapt to the new norms and boost their work-from-home flexibility.

Opportunistically downsizing

However, they are not intending on major staff reductions.

All the buy-side participants who took part in the study, expect a return to the office by the end of the year. However, they are predicting that workplaces will look different than they were before lockdowns started in March 2020.

More than 40% of the firms intend to cut on office space. Of these, 15% of them said they’d reduce office space by at least 20%.

Even with most traders keen to go back to the office, firms realize that work-from-home has become the norm in the business community. As such, they are looking to adjust their models in line with enhanced flexibility. This is to attract human capital.

Many firms are making adjustments, and taking the chance to adapt to leaner workspaces and cut on rent expense.

Layoffs: not the stimulus for scaling down offices

Study responses also showed that less office space neither translates to a smaller workforce nor extensive layoffs affecting institutional money managers. In fact, a vast majority (80%) await no change to their staffing needs due to COVID-19 or remote work.

Serious headcount reductions are not expected. In fact, only 4% of firms have cut or expected to lower jobs by more than 20%. As the pandemic spiked volatility, money managers and traders needed every worker to capture alpha and rebalance portfolios in affected financial markets.

Though the U.S’s figures on joblessness are at around 5 million (above historical norms), this has not been the norm among buy-side firms. Their employees have been lucky to evade the economic pain.

Bloomberg Intelligence
Source: Bloomberg Intelligence

Workplace lessons from the pandemic

COVID-19 demonstrated that a sizable amount of work can be done outside of offices.

Part of the workforce realized that they are more productive at home. That they prefer the liberty of a much-relaxed schedule. In fact, few look forward to the morning commute. However, it also exposed its limitations. When in a knowledge economy, the success of a firm relies on collaboration, face-to-face interaction, and chance. As such, even with flexible working, the office will act as a vital anchor.

Office space changes companies may make

The International Monetary Fund hailed “the Great Lockdown” as the “worst economic downturn since the Great Depression of the 1930s, and foresees a recession at least as bad or worse than the 2007-08 global financial crisis.”

 For this reason, it is inevitable that there will be a cutback in occupier demand. However, this may vary depending on the sector. For instance, the worst-affected sectors were the leisure and tourism industries. These may require less corporate space. On the other hand, some professional services firms may continue normally but with a change to working practices.

Booming sectors such as e-commerce and technology are more likely to shift towards virtual working. Jack Dorsey, Twitter CEO, said that the employees can choose to work from home on a permanent basis.

“Companies could see this as an opportunity to downsize, to reduce operating costs and invest more in technology,” says Paul Stapley, vice president of the project management team at WSP in Canada. “Occupiers have already been moving to shorter lease terms. If they’ve only got, say, six months left, they may decide to walk away.”

Bloomberg Intelligence
Source: Bloomberg Intelligence
 COVID-19’s strange phenomenon

COVID-19 is a strange phenomenon because its direct impact on organizations is in the opposite direction. In order to welcome employees into the office, companies will require more space per employee. In the past, companies had been trying to squeeze more and more people into office space. For them to reopen safely, they will have to observe physical distancing. This means that ratios will have to go up again. There may be the introduction of shifts, staggered start times or simply extended remote working where necessary.

It is too early to gauge the longer-term impact on office requirements. However, the inevitable truth is that office space will never be the same.

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