- McKinsey surveyed 13,000 office workers around the world for a model to predict real estate demand.
- It estimated that $800 billion of real estate value will be wiped out from nine major cities.
$800 billion worth of office space is at risk, caused by lower demand due to remote work, according to a McKinsey report.
Based on a survey of 13,000 full-time office workers, the management-consulting firm built a model that projects demand for real estate in nine major cities across the US, Europe, and Asia. The cities include San Francisco, London, New York, Houston, Paris, Munich, Tokyo, Beijing, and Shanghai.
The consulting giant found that, in most of these cities, demand in 2030 will still be lower than it was in 2019, before the pandemic. The $800 billion figure is based on an average 26% decline in the value of the cities' office space across that time period.
Although McKinsey suggests even more value could be lost if interest rates continue to rise.
The report also describes a "flight to quality" trend between 2020 and 2022, because high-quality offices are better suited to hybrid work as they tend to be near commuter transit and have audiovisual equipment to connect with remote workers.
McKinsey's model predicts a "dire outlook" for San Francisco. It's set to fare the worst of the nine cities, with a 20% drop in office-space demand in a moderate scenario — or as much as 38% in a severe case.
The report says that's sparked by its prevalence of commuters; high house prices; and the idea that tech workers are more inclined to adopt remote work technology.
Downtown San Francisco is already proving unpopular with the likes of Elon Musk, while a lawsuit says his attorney justified Twitter not paying rent on its headquarters because the city is a "shithole."
Houston and Beijing are the only cities predicted to see higher demand for office space, with a 2% rise over the 11-year period according to the model's moderate scenario.
In short, McKinsey says hybrid work is here to stay — with office attendance currently at around 30% below pre-pandemic levels.