According to a recent report from McKinsey, the value of office space in some of the world’s major cities could decrease significantly by 2030 due to the growing trend of remote work. The report, based on a survey of 13,000 full-time office workers, examined the real estate demand in nine important cities across the US, Europe, and Asia, including San Francisco, London, New York, Houston, Paris, Munich, Tokyo, Beijing, and Shanghai.
The findings indicate that most of these cities are expected to experience a decline in office space demand in 2030 compared to pre-pandemic levels in 2019. The estimated reduction in value amounts to a staggering $800 billion, reflecting an average 26% decrease in office space worth during that time period. However, the report suggests that this figure could potentially increase further if interest rates continue to rise.
Interestingly, the report also identifies a trend called “flight to quality” observed between 2020 and 2022, whereby high-quality office spaces located conveniently near commuter transit and equipped with advanced audiovisual technology for remote collaboration are preferred for hybrid work setups.
McKinsey’s projections paint a challenging outlook for San Francisco, which is predicted to experience the most significant drop in office space demand among the nine cities analyzed. The decline is projected to be around 20% in a moderate scenario and potentially as high as 38% in a severe case.
This can be attributed to several factors, including a significant number of commuters, expensive housing prices, and the perceived willingness of tech workers to embrace remote work technology. Notably, influential figures like Elon Musk have already expressed dissatisfaction with downtown San Francisco, and there has been a lawsuit alleging Twitter’s refusal to pay rent for its headquarters based on negative perceptions of the city.
Interestingly, only Houston and Beijing are expected to witness an increase in office space demand, with a modest rise of 2% over the 11-year period according to the moderate scenario presented by McKinsey’s model.
In conclusion, McKinsey’s report suggests that hybrid work, combining remote and in-office arrangements, is likely to become the new norm. This is supported by the fact that current office attendance levels remain approximately 30% lower than before the pandemic.