A recent report from McKinsey warns that remote work could have a significant impact on the value of office buildings, with a potential loss of $800 billion by 2030.
To create a model for forecasting real estate demand, the consultancy company polled 13,000 office workers globally. San Francisco, London, New York, Houston, Paris, Munich, Tokyo, Beijing, and Shanghai were among the nine major cities examined in the study.
McKinsey predicts that the demand for office space in the majority of these cities in 2030 will remain below pre-pandemic levels in 2019. Over the nine locations, the anticipated $800 billion reduction in office space value is an average 26 per cent decline. The actual loss, though, might be substantially bigger, according to McKinsey, if interest rates keep rising.
The report also identifies a “flight to quality” trend observed between 2020 and 2022, where high-quality office spaces are more desirable for hybrid work due to their proximity to transportation and availability of audiovisual equipment for remote collaboration.
San Francisco is expected to have the most difficult future of all the cities. In a moderate scenario, the model predicts a 20 per cent decline in the demand for office space, which may rise to 38 per cent in a severe scenario. A large concentration of commuters, high housing costs, and the tendency of the IT sector toward remote employment are some of the causes of this trend.
Notably, Elon Musk and other well-known individuals have already voiced their displeasure with downtown San Francisco, and a legal dispute involving Twitter underscores unfavorable opinions about the area. The bad prognosis for the city is influenced by these elements.
However, Houston and Beijing are the only cities expected to experience an increase in office space demand, with a projected 2 per cent rise over the 11-year period according to the model’s moderate scenario.
In conclusion, McKinsey emphasises that hybrid work is likely to persist, as current office attendance remains approximately 30 per cent lower than pre-pandemic levels.