How CFOs are handling commercial real estate challenges

The last few years have resulted in more companies adopting hybrid work models—and fewer professionals heading into the office full-time. For CFOs in the commercial real estate industry, the impact has been foundational. In last year’s fourth quarter, the U.S. office vacancy rate hit 18.6%, marking a 30-year high.

So what’s next for finance executives in the property sector? In the short term, their focus is on figuring out how to cut costs and streamline back-office operations—laying the groundwork for a potential industry upturn. Longer term, they may want to look for ways that they can better insulate their organizations from future boom-bust cycles.

Many CFOs have a stake in how effectively the industry confronts its current challenges, given that office space costs typically rank as a top expense category on balance sheets. Depending on the severity of the sector’s woes—and the pace of its recovery—ripple effects may spread to banks and other financial institutions whose portfolios hold a significant proportion of real estate loans. This could, in turn, make it more difficult for companies to access capital or refinance existing loans.

Given the decrease in money coming in, CFOs at property companies may have little choice but to address spending. In Deloitte’s 2024 Commercial Real Estate Outlook survey, 40% of CFOs and their direct reports indicated they expected to cut costs this year. Toward that end, CFOs of commercial real estate companies may also consider outsourcing some functions.

Some CFOs have other reasons for outsourcing: To gain competitive advantage. Modernizing back-office systems and processes right now could give their businesses an edge once the current slump recedes. In the Deloitte survey, 61% of respondents indicated they’re considering outsourcing certain operational capabilities. As for the reason, 42% of respondents cited boosting their technology capabilities and streamlining processes. Another 39% said they’re looking to add agility and resilience to operations.

Bottom line: It’s hard to make money off of empty space. A drop in interest rates could help, but in the meantime, commercial real estate CFOs should get their firms prepared to take full advantage of a market up-cycle. Learn how by downloading the full article below.