Mcsey

GlobalInstitute

McKinsey’sRealEstatePractice

Emptyspaces

andhybridplaces

Thepandemic’slastingimpactonrealestate

Authors

July2023

OliviaWhiteRobPalter

AdityaSanghviAndréDua

JinnieRheeSvenSmit

AnnaFu

JanMischke

RyanLuby

BrianVickery

JonathanWoetzel

Editor

BenjaminPlotinsky

Coverimage?JustinMetz

McKinseyGlobalInstitute

TheMcKinseyGlobalInstitutewasestablishedin1990.Ourmissionistoprovideafactbaseto

aiddecisionmakingontheeconomicandbusinessissuesmostcriticaltotheworld’scompaniesandpolicyleaders.WebenefitfromthefullrangeofMcKinsey’sregional,sectoral,andfunctionalknowledge,skills,andexpertise,buteditorialdirectionanddecisionsaresolelytheresponsibilityofMGIdirectorsandpartners.

Ourresearchiscurrentlygroupedintofivemajorthemes:

—Productivityandprosperity:Creatingandharnessingtheworld’sassetsmostproductively

—Resourcesoftheworld:Building,powering,andfeedingtheworldsustainably

—Humanpotential:Maximizingandachievingthepotentialofhumantalent

—Globalconnections:Exploringhowflowsofgoods,people,andideasshapeeconomies

—Technologiesandmarketsofthefuture:Discussingthenextbigarenasofvalueandcompetition

Weaimforindependentandfact-basedresearch.Noneofourworkiscommissionedorfundedbyanybusiness,government,orotherinstitution;weshareourresultspubliclyfreeofcharge;

andweareentirelyfundedbythepartnersofMcKinsey.Whileweengagemultipledistinguishedexternaladviserstocontributetoourwork,theanalysespresentedinourpublicationsareMGI’salone,andanyerrorsareourown.

YoucanfindoutmoreaboutMGIandourresearchat/mgi.

MGIDirectors

MGIPartners

SvenSmit(chair)

MarcoPiccitto

MichaelChui

JanMischke

ChrisBradley

OliviaWhite

MekalaKrishnan

JeongminSeong

KweilinEllingrud

JonathanWoetzel

AnuMadgavkar

TilmanTacke

McKinsey’sRealEstatePractice

McKinsey’sRealEstatePracticeworkswithinvestors,propertyowners,realestatemanagers,andtheworld’sleadingorganizationsthataretheprimaryoccupiersandusersofspace.Weaimtoacceleratesustainableandinclusivegrowththatbenefitsthebusinesses,environments,andcommunitiesthatourclientsserve.

Withproprietarytechnology,globalscale,andlocalexpertise,weareuniquelyequippedtohelpclientsembracedisruption,pioneerinnovation,andshapeanewfutureforthemselvesandfortheindustry.

YoucanfindoutmoreaboutMcKinsey’sRealEstatePracticeanditsinsightsat

/industries/real-estate/our-insights.

?MintImages/GettyImages

Contents

Ataglance

iv

Executivesummary

1

1.Howhybridworkhaschangedthewaypeoplework,live,andshop

17

2.Theimpactonrealestate

39

3.Whatstronglyaffectedneighborhoodsandcitieshaveincommon

59

4.Thrivinginhybridplaces

67

Technicalappendix

73

Acknowledgments

79

Ataglance

ThisresearchexaminestheimpactoftheCOVID-19pandemiconrealestatein“superstar”citiesintheUnitedStates,Europe,andAsia.Thatrealestatehasnotkeptupwithshiftsinbehavior

causedbythepandemic.Thecities’vibrancyisatrisk,andtheywillhavetoadapt.

—Hybridworkisheretostay.Asaresult,officeattendancehasstabilizedat30percentbelowprepandemicnorms.

—Therippleeffectsofhybridworkaresubstantial.Untetheredfromtheiroffices,residentshavelefturbancoresandshiftedtheirshoppingelsewhere.Forexample,NewYorkCity’s

urbancorelost5percentofitspopulationfrommid-2020tomid-2022,andSanFrancisco’slost7percent.Urbanvacancyrateshaveshotup.Foottrafficnearstoresinmetropolitan

areasremains10to20percentbelowprepandemiclevels.

—Demandforofficeandretailspaceinsuperstarcitieswillremainbelowprepandemic

levels.Inamoderatescenariothatwemodeled,demandforofficespaceis13percentlowerin2030thanitwasin2019forthemediancityinourstudy.Inaseverescenario,demandfallsby38percentinthemostheavilyaffectedcity.

—Realestateislocal,anddemandwillvarysubstantiallybyneighborhoodandcity.

Demandmaybelowerinneighborhoodsandcitiescharacterizedbydenseofficespace,expensivehousing,andlargeemployersintheknowledgeeconomy.

—Citiesandbuildingscanadaptandthrivebytakinghybridapproachesthemselves.

Prioritiesmightincludedevelopingmixed-useneighborhoods,constructingmoreadaptablebuildings,anddesigningmultiuseofficeandretailspace.

McKinseyGlobalInstitute|Emptyspacesandhybridplaces:Thepandemic’slastingimpactonrealestateiv

Exhibit

Inamoderatescenario,demandforomceandretailspacefallssharplybetween2019and2030.

Changeindemandforrealestatebeforepricesadjust,2019–30,%

Changeresultingfromfactorsunrelatedtothepandemic

Changeresultingfrompandemic-drivenbehavior

Retailspaceinurbancores

–20–100

OmcespaceRiae

10

–20–100100102030

San

Francisco?20

?2

?17

London

?11

6

?22

NewYorkCity?16

6

?14

Houston

2

26

?3

Paris

?13

?4

?9

Munich

?16

8

?4

?9

Tokyo

12

?2

Beijing

2

5

?9

Shanghai

?14

3

1

Note:Formoreinformationaboutthescenario,seethetechnicalappendix.

1Demandforresidentialspaceinsuperstarcitiesishighlypriceelastic,sointhelongrun,theseshiftswouldprobablyleadtoarebalancingofpricesratherthananactualreductionindemand.

Source:BeijingMunicipalBureauofStatistics;BNPParibas;Colliers;CommercialRealEstateIntelligenceSolutions;CoStar;DepartmentforLevellingUp,

HousingandCommunities(UnitedKingdom);E&GRealEstate;E-Stat(Japan);Eurostat;EW&AssociatesRealty;FederalStatisticalOice(Germany);GermanPropertyPartners;Kastle;MinistryofBeijing;MitsuiFudosan;NationalInstituteofStatisticsandEconomicStudies(France);NationalStatisticsInstitute(Spain);OiceforNationalStatistics(UnitedKingdom);RealAdvisor;SankoEstateCompany;ShanghaiMunicipalBureauofStatistics;StatisticsBureauofJapan;TokyoMetropolitanGovernment;USBureauofLaborStatistics;USCensusBureau;McKinseyGlobalInstituteanalysis

McKinsey&Company

McKinseyGlobalInstitute|Emptyspacesandhybridplaces:Thepandemic’slastingimpactonrealestatev

?ReneDeHaan/Stocksy

Executivesummary

WhentheCOVID-19pandemicbegan,itdramaticallychangedthewaypeopleworked,lived,

andshoppedincitiesaroundtheworld.Thestarkestchangewaswhereandhowtheyworked.Obeyinglockdownsandofficeclosures,tiredofuncomfortablemasks,andenabledbyremote-worktechnology,manyemployeesabruptlyretreatedfromtraditionalofficestohomeoffices.

Manyofthoseemployees,newlyfreedfromtheirdailycommutes,chosetomoveoutofurban

cores.Andnowthatfewerofthemwereworkingandlivingnearurbanstores,fewerofthem

shoppedthere.Inrecentmonths,someofthosebehavioralshiftshaveslowed.Otherspersist,particularlyamongofficeemployeescontinuingtoengageinhybridwork(thatis,acombinationofremoteandin-officework).

Thebehavioralshiftshavealreadyhadmajoreffectsonrealestatein“superstar”cities—roughlyspeaking,citieswithadisproportionateshareoftheworld’surbanGDPandGDPgrowth.

Insuperstarcities’urbancores,thepercentageofofficeandretailspacethatisvacanthas

grownsharplysince2019,andhomepriceshaveincreasedmoreslowlythaninthesuburbsandothercities.

Towhatextentcouldrealestateinsuperstarcitiescontinuetosuffer?Inthisresearch,the

McKinseyGlobalInstitutehasmodeledfuturedemandforoffice,residential,andretailspace

inseveralscenarios.1Inthosescenarios,demandforofficeandretailspaceisgenerallylowerin

2030thanitwasin2019,thoughtheanticipatedreductionsinourmoderatescenarioaresmallerthanthoseprojectedbymanyotherresearchers.Ouranalysisalsoshowsthattherippleeffectswillbecomplex—forexample,thatcertainkindsofcitiesandneighborhoodswillbemoreheavilyaffectedthanothers.Weconsideredawidevarietyoffactors,includinglong-termpopulation

trends;employmenttrends,suchastheongoingeffectsofautomation;officeattendance

patternsbyindustry;employeecoordination,definedasthemaximumshareofworkersinthe

officeatagiventime;workers’agesandincomes;theshareofacity’spopulationthatcommutesfromelsewhere;housingpricevariationamongneighborhoods;andshoppingtrends,suchas

theongoingincreaseinonlineshopping.Inadditiontomanysecondarysources,ourmodelingincludesinformationfromalargeglobalsurveythatweconductedtounderstandthebehavioralshiftscausedbythepandemic.

Weperformedthisresearchduringatimeofexceptionalmacroeconomicuncertainty.Inflationandinterestratesarehigh;fearsofrecessionaremounting;stressinthefinancialsystemhasbeenmakingheadlines.Actualoutcomes,ofcourse,willdependonhowthosevariablesand

othersplayout.

Whatiscertainisthaturbanrealestateinsuperstarcitiesaroundtheworldfacessubstantial

challenges.Andthosechallengescouldimperilthefiscalhealthofcities,manyofwhichare

alreadystrainingtoaddresshomelessness,transitneeds,andotherpressingissues.Butthe

challengesalsoprovideanopportunitytospurahistorictransformationofurbanspaces.By

becomingmoreflexibleandadaptableineverythingfromthemakeupofneighborhoodstothedesignofbuildings—inessence,becomingmore“hybrid”themselves—superstarcitiescannotonlyadaptbutthrive.

1Theresearchconsidersonlythosethreeassetclasses:office,residential,andretailspace.Others,suchasindustrialspaceandself-storagespace,areoutsidethescopeoftheresearch.

McKinseyGlobalInstitute|Emptyspacesandhybridplaces:Thepandemic’slastingimpactonrealestate1

Howhybridworkhaschangedthewaypeoplework,live,andshop

Duringthepandemic,workers’officeattendanceplummeted.Untetheredfromtheirdaily

commutes,urbanitesmovedawayfromurbancoresingreaternumbersthantheyhadbefore

thepandemic(andfewerpeoplemovedin),andpeoplespentlessinurbanstores(seeBoxE1,

“Howwedefinecities”).Therateofout-migrationhasnowreturnedtoitsprepandemictrend,butourresearchsuggeststhatfewofthepeoplewholeftwillreturnandthaturbanshoppingwillnotfullyrecover.

BoxE1

Howwedefinecities

Thisreportisaboutrealestateinsuperstarcities—roughlyspeaking,citieswitha

disproportionateshareoftheworld’surbanGDPandGDPgrowth.Wehaveborrowed

thetermandtheconceptfromthe2018MGIreportSuperstars:Thedynamicsoffirms,sectors,andcitiesleadingtheglobaleconomy.Thereportdoesnotexaminerealestateoutsidesuperstarcities.

Bycity,weusuallymeanalargemetropolitanarea.Ouranalysisoftenseparatessuchametropolitanareaintotwoparts:theurbancore,whichreferstothedensestpartofthearea,andthesuburbs,whichreferstoeverythingoutsidetheurbancore.Forexample,whenwediscussSanFrancisco’surbancore,wemeanSanFranciscoCounty,AlamedaCounty,andSanMateoCounty.AndwhenwediscussSanFrancisco’ssuburbs,we

meantherestoftheSanFranciscometropolitanarea(thatis,MarinCountyandContraCostaCounty).

Wefocusmostcloselyonninesuperstarcities:Beijing,Houston,London,NewYorkCity,

Paris,Munich,SanFrancisco,Shanghai,andTokyo.However,inthesurveythatunderlies

muchofthisreport,wecollecteddatafromalargersetof17superstarcitiesinsixcountriesinordertobetterunderstandbehavior.Atonepointinourresearch,wewereabletoextend

ouranalysistoastilllargersetof24superstarcitiestohelpusidentifypatternsinsuburbanization.

Hybridworkisheretostay,andofficeattendanceisdownby30percent

Employeesstillspendfarlesstimeworkingattheofficethantheydidbeforethepandemic,

accordingtooursurvey.Inearly2020,astheyadoptedremoteworkandhybridworkinresponsetolockdownsandhealthconcerns,officeattendanceinthemetropolitanareaswestudied

droppedbyupto90percent.Ithassincerecoveredsubstantiallybutremainsdownbyabout30percent,onaverage.AsofOctober2022,officeworkerswerevisitingtheofficeabout

3.5daysperweek.Thatnumbervariedamongcities,from3.1daysinLondonto3.9inBeijing.(Formoreinformationaboutthesurvey,seethetechnicalappendix.)

Officeattendancealsovariesbyindustryandneighborhood.Inlargefirmsintheknowledge

economy—whichwedefineastheprofessionalservices,information,andfinanceindustries—

employeestendtogototheofficefewerdaysperweek(ExhibitE1).Characteristicsofareas

withlowerofficeattendanceincludeexpensivehousing,ahigherratioofinboundcommuterstoresidents,andasmallshareofretail,accordingtoourresearchonUScounties.Localculturealsoplaysarole.

McKinseyGlobalInstitute|Emptyspacesandhybridplaces:Thepandemic’slastingimpactonrealestate2

Professionalservices

Information

Finance

ManagementHealthcare

Artsand

Utilities

Realestate

ManufacturingEducation

Government

Construction

Retailand

TransportationAgriculture

ExhibitE1

Omceattendanceislowerinlargeirmsintheknowledgeeconomy.

Reportednumberofdaysperweekworkedintheomce:012345

Industry:

andmining

accommodationandadministration

wholesaletrade

3.03.23.43.63.84.0

Firmswith

employeecountof:

522250050,40–9902490+4,999

3.03.23.43.63.84.0

Note:Surveyrespondentswereasked,“Onaverage,howmanydaysoftheweekdoyouworkintheoicecurrently?”Theseresultsexcluderespondentswho

saidthattheywerenot“currentlyemployedandintheoiceworkforce.”Theyalsoexcluderespondentswhosaidthattheywerenotcurrentlyworkingfulltime.

Source:McKinseyGlobalInstituteanalysis

McKinsey&Company

Thereareseveralreasonstobelievethatthecurrentrateofofficeattendancecouldpersist.First,theratehasremainedfairlystablesincemid-2022.Second,threekeynumbers—thenumber

ofdaysperweekthatsurveyrespondentsgototheoffice(3.5),thenumberofdaystheyexpect

togototheofficeafterthepandemicends(3.7),andtheirpreferrednumber(3.2)—arenotfar

apart.Third,10percentofthepeoplewesurveyedsaidthattheywerebothlikelytoquittheir

jobsifrequiredtoworkattheofficeeverydayandwillingtotakeasubstantialpaycutifdoing

soletthemworkfromhomewhentheywanted.Thatgroupcontainsmanysenior,high-income

employees,suggestingthattheymaywieldinfluenceovercompanies’decisions.Nevertheless,itisnotcertainthatthecurrentrateofofficeattendancewillpersist;itcouldchange,forexample,iflabormarketdynamicsshiftorifresearchconclusivelyindicateseitheranegativeorapositiverelationshipbetweenhybridworkandproductivity.

McKinseyGlobalInstitute|Emptyspacesandhybridplaces:Thepandemic’slastingimpactonrealestate3

Upto7percentofthepeopleinurbancoresleftforgood

Duringthepandemic,awaveofhouseholdslefttheurbancoresofsuperstarcities,andfewer

householdsmovedin.Forexample,NewYorkCity’surbancorelost5percentofitspopulation

frommid-2020tomid-2022,andSanFrancisco’slost7percent.Themainreasonwasout-

migration.Inthesuburbs,bycontrast,populationsgrew,ortheyshranklessdramaticallythan

populationsintheurbancoresdid.IntheUnitedStates,suburbanizationhadalreadybeen

happeningbeforethepandemic,andtheshockacceleratedanexistingtrend;bycontrast,in

mostoftheEuropeanandJapanesecitieswestudied,urbanizationgavewaytosuburbanization(ExhibitE2).

ExhibitE2

Duringthepandemic,mostsuburbsgrewmorequicklythantheirurbancores.

Diferencebetweenurbanandsuburbanpopulationgrowthrates,percentagepoints

Throughthepandemic2020–22CAGR

Throughthepandemic2020–21CAGR

(2022datanotyetavailable)

Prepandemic

2015–19CAGR

Urbangrowthstronger

Suburbangrowthstronger

Country

Metroarea

8765432101

USUSUSUSUS

US USSpainFranceUS

US USGermanyGermanyGermanyGermanyGermany US JapanJapan

Japan

Dallas

Houston

NewYorkCity

SanFrancisco

Washington,DC

Boston

Chicago

Madrid

Paris

Atlanta

Philadelphia

LosAngeles

Cologne

Frankfurt

Berlin

Munich

Düsseldorf

Seattle

Tokyo

Osaka

Nagoya

UKLondon

ChinaBeijing

ChinaShanghai

Note:ResultsshownforLondonarebasedoncensusrevisionsmadefor2021bytheUnitedKingdom’sOiceforNationalStatistics.

Source:BeijingMunicipalBureauofStatistics;Eurostat;NationalInstituteofStatisticsandEconomicStudies(France);NationalStatisticsInstitute(Spain);

E-Stat(Japan);OiceforNationalStatistics(UnitedKingdom);ShanghaiMunicipalBureauofStatistics;USCensusBureau;McKinseyGlobalInstituteanalysis

McKinsey&Company

McKinseyGlobalInstitute|Emptyspacesandhybridplaces:Thepandemic’slastingimpactonrealestate4

Theurbancoreswherepopulationgrowthwassmallestinrelationtotheirsuburbstendedto

bethosewithexpensivehomes,highofficedensity,ahighshareofworkersintheknowledge

economy,andlimitedretailpresence—someofthesamecharacteristicsthatshapedoffice

attendance.London,Dallas,NewYork,SanFrancisco,andBostonwerethemostaffected.In

general,USurbancoresweremoreaffectedthanEuropeanandJapaneseones,whichtendtohavemoremixed-usedevelopment,inwhichoffice,residential,andretailspaceexistalongsideoneanother.ThemigrationtrendsinBeijingwereprimarilyshapedbyprepandemicefforts

tocontrolthepopulationsizeinurbancoresbyencouragingout-migration,effortsthatwerepausedduringthepandemic.

Hybridworkseemstohavecontributedsignificantlytoout-migration.Inoursurvey,amongrespondentswhomovedafterMarch2020,20percentsaidthattheirmovewaspossibleonlybecausetheycouldnowworkfromhomemorefrequently.IntheUnitedKingdomandtheUnitedStates,peoplewhohadmovedfromurbancorestosuburbs,andwhosaidthattheirmovewaspossibleonlybecausetheycouldnowworkfromhome,saidthattheyweredrawnbyhousingconditions:betterneighborhoods,theprospectofhomeownership,andoutdoorspace.InJapanandChina,wantingtoownahomewasfarandawaythestrongestfactormotivatingpeople’smovestothesuburbs.

Out-migrationfromurbancoresofsuperstarcitiesseemstohaveslowed,butitisstillabove

prepandemiclevels.From2019to2021,netout-migrationfromUSsuperstarcitycoresdoubled;thenitfellin2022,althoughitremainedabove2019rates.Inotherwords,thepeoplewhomovedoutduringthepandemicarenotmovingback,andotherskeepleaving.

Shoppingremainsdepressed,especiallyinurbancores

Aspeoplestayedhomeduringthepandemic,theyradicallyshiftedthewaytheyshopped.Foottrafficplummetednearstoresinthecitieswestudied,andonlinespendingasashareofretailspendingspiked.

Morerecently,foottrafficnearstoresinmetropolitanareashasrisenagain,butitisstill10to

20percentlowerthanitwasbeforethepandemic.Amajorreasonforthedeclineisthatonlinespendingasashareofretailspending,whichadmittedlygrewmoreslowlyaftertheinitialspike,neverthelessremainshigherthanitwasin2019.

Retailersinurbancoresfaceparticularlyacutechallengesinattractingcustomers.AsofOctober2022,foottraffichadrecoverednoticeablylessnearthosestoresthannearsuburbanones

(ExhibitE3).InNewYork,forexample,foottrafficnearsuburbanstoreswas16percentlower

thanithadbeeninJanuary2020,butfoottrafficnearurbanstoreswas36percentlower.And

office-denseneighborhoodsinurbancoresarefacingevenmorechallenges.Thereasonseemstobethatwhenpeoplecometotheofficelessoften,theyshoplessoftenneartheoffice.Inoursurvey,respondentsintheUnitedStateswhoworkedattheofficenomorethanonedayper

weekreporteddoingmuchlessoftheirtotalretailspendingneartheofficethandidthosewhoworkedintheofficetwotofivedaysaweek.

Out-migrationfromurbancoresofsuperstarcitiesseemsto

haveslowed,butitisstillabove

prepandemiclevels.

McKinseyGlobalInstitute|Emptyspacesandhybridplaces:Thepandemic’slastingimpactonrealestate5

ExhibitE3

Foottramcnearstoresisrecoveringmorequicklyinthesuburbsthaninurbancores.

ChangeinfoottramcnearstoresfromJanuary2020,%1SuburbanUrban

NewYorkCityLondonParis

0

-50

-100

202020212022

0

-50

-100202020212022

0

-50

-100

202020212022

SanFrancisco

0

-50

-100

202020212022

Houston

0

-50

-100

202020212022

Tokyo

0

-50

-100

202020212022

Note:Citiesaredeinedasfollows:theNewYork–Newark–JerseyCitymetropolitanstatisticalarea(MSA);theGreaterLondonarea;?le-de-France;theSanFrancisco–Oakland–HaywardMSA;theHouston–TheWoodlands–SugarLandMSA;andtheKantoRegion(Tokyo).

1Storesincluderetailandrecreationlocationsbutnotgrocerystoresorpharmacies.

Source:Google’sCommunityMobilityReports;McKinseyGlobalInstituteanalysis

McKinsey&Company

McKinseyGlobalInstitute|Emptyspacesandhybridplaces:Thepandemic’slastingimpactonrealestate6

Theimpactonrealestate

Thebehavioralchangescausedbythepandemic—lowerofficeattendance,accelerated

out-migrationfromcities,andlessshoppinginoffice-heavyneighborhoods—willpushdowndemandforrealestateinmostsuperstarcities.By2030,inthescenarioswemodeled,

demandforofficeandretailspaceisgenerallylowerthanitwasin2019(ExhibitE4).

Residentialspaceislessaffected,thoughthepricedifferencesbetweenurbancoresandsuburbsarenarrowerthantheyusedtobe.(Notethatourmodeldoesnotconsiderpriceelasticity;thatis,itdoesnotaccountforthefactthatwhendemanddecreases,pricesfall,

pushingdemandpartwaybackup.Formoreinformationaboutthemodel,seethetechnicalappendix.)

ExhibitE4

Inamoderatescenario,demandforomceandretailspacefallssharplybetween2019and2030.

Changeindemandforrealestatebeforepricesadjust,2019–30,%

Changeresultingfromfactorsunrelatedtothepandemic

Changeresultingfrompandemic-drivenbehavior

OmcespaceRiae

–20–100100102030

Retailspaceinurbancores

–20–100

10

San

Francisco?20

?2

?17

London

?11

6

?22

NewYorkCity?16

6

?14

Houston

2

26

?3

Paris

?13

?4

?9

Munich

?16

8

?4

?9

Tokyo

12

?2

Beijing

2

5

?9

Shanghai

?14

3

1

Note:Formoreinformationaboutthescenario,seethetechnicalappendix.

1Demandforresidentialspaceinsuperstarcitiesishighlypriceelastic,sointhelongrun,theseshiftswouldprobablyleadtoarebalancingofpricesratherthananactualreductionindemand.

Source:BeijingMunicipalBureauofStatistics;BNPParibas;Colliers;CommercialRealEstateIntelligenceSolutions;CoStar;DepartmentforLevellingUp,

HousingandCommunities(UnitedKingdom);E&GRealEstate;E-Stat(Japan);Eurostat;EW&AssociatesRealty;FederalStatisticalOice(Germany);GermanPropertyPartners;Kastle;MinistryofBeijing;MitsuiFudosan;NationalInstituteofStatisticsandEconomicStudies(France);NationalStatisticsInstitute(Spain);OiceforNationalStatistics(UnitedKingdom);RealAdvisor;SankoEstateCompany;ShanghaiMunicipalBureauofStatistics;StatisticsBureauofJapan;TokyoMetropolitanGovernment;USBureauofLaborStatistics;USCensusBureau;McKinseyGlobalInstituteanalysis

McKinsey&Company

McKinseyGlobalInstitute|Emptyspacesandhybridplaces:Thepandemic’slastingimpactonrealestate7

Therewillbe13percentlessdemandforofficespaceinthemediancitywestudied

Demandforofficespacehasalreadydeclined,partlybecauseoftheincreaseinremoteworkandpartlybecauseofachallengingmacroeconomicenvironment.Vacancyrateshaveincreasedinallthecitieswestudied.IntheUScities,transactionvolume(thetotaldollarvalueofallsales)fellby57percent,averagesalepricepersquarefootfellby20percent,andaskingrentsfellbynearly

22percent(allinrealterms)from2019to2022.InSanFrancisco,themoststronglyaffectedcityintheUnitedStates,theshareofofficespacethatwasvacantwastenpercentagepointshigherin2022thanitwasin2019,transactionvolumewas79percentlower,salepricespersquarefootwere24percentlower,andaskingrentswere28percentlower(alsoinrealterms).Thedecline

indemandhaspromptedtenants—waryaboutcurrentmacroeconomicconditions,uncertain

abouthowmuchtheirworkerswillcometotheoffice,andthereforeuncertainabouthowmuch

spacetheywillneed—tonegotiateshorterleasesfromowners.Shorterleases,inturn,maymakeitmoredifficultforownerstoobtainfinancingormaycausebankstoadjustvaluationmodels,

whichrelyinpartonthedurationofexistingleases.

$800bn

Valueofofficespace