The explosion of work-from-home schedules that began during COVID-19 lockdowns and continues today could slash the value of office buildings in several major cities by $800 billion by the end of the decade, according to a study by consulting group McKinsey.
McKinsey’s study of what it called “superstar” cities—Beijing, Houston, London, New York, Paris, Munich, San Francisco, Shanghai, and Tokyo—found demand for office space in 2030 would be 13% below what it was in 2019.
McKinsey said that even with the pandemic over, office attendance is still 30% below what it was before the outbreak. It added that “hybrid work is here to stay.”
The study indicated that commercial real estate vacancy rates in the urban cores it studied went up 3.3 percentage points from 2019 to 2022, and rents that were actually paid may have fallen even more.
McKinsey said the drop in demand has allowed tenants to negotiate shorter leases from building owners, and there’s been a shift in preferences for those companies that are looking for office space to a “flight to quality.” It explained that from 2020 to 2022, rents and demand for Class A space grew more quickly than Class B space in many U.S. cities as employers looked to provide a more attractive workplace for their staff.
