A vacant office building in the financial district of New York, on July 6.BRENDAN MCDERMID/Reuters
A shift to remote working is likely to wipe off US$800-billion from the value of office buildings in major global cities by 2030, according to a study published by consulting firm McKinsey on Thursday.
The survey on nine “superstar” cities – Beijing, Houston, London, New York City, Paris, Munich, San Francisco, Shanghai and Tokyo – showed that demand for office space would be 13 per cent lower in 2030 than it was in prepandemic 2019.
“Superstar” cities are locations with a disproportionate share of the world’s urban gross domestic product (GDP) and GDP growth.
The survey said employees continued to spend far less time working at the office compared to prepandemic times. Remote working seemed to have contributed to migration away from prime cities, partly influenced by complete work-from-home models and cheaper housing availability in suburban areas.
In the aftermath of the COVID-19 pandemic, tenants have reduced their office real estate and several corporates have switched to a permanent hybrid work model.
“The decline in demand has prompted tenants … to negotiate shorter leases from owners,” said the McKinsey report, adding that short-term leases might make it more difficult for property owners to secure financing.
Besides rising vacancy rates, commercial property firms globally are battling steep declines in valuation of their properties as a surge in borrowing costs amid high interest rate environment forces investors to look at more profitable avenues.
Similarly, the impact could be stronger if troubled financial institutions decide to more quickly reduce the value of property they finance or own, according to the survey.
The McKinsey report comes at a time when world economies are navigating an array of macroeconomic challenges such as elevated inflation, high interest rate levels and mounting recession fears.