Life in the world‘s major cities has changed fundamentally – and will no longer be what it was before the pandemic. In the classic office megacities in particular, the massive influx of commuters that used to be the norm is diminishing, a number of offices remain empty, and even residents are turning their backs on the city centers – at least in places where it used to be particularly cramped and expensive.
On average, employees in the largest economic metropolises will only spend around 3.5 days a week in the office in the future. This is the result of a comprehensive market study by the McKinsey Global Institute (MGI). As a result, the demand for retail space is also falling. There are even signs of relaxation on some housing markets – for example in New York, London and Paris.
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In Munich, employees would only spend 3.5 days a week in the office, in New York and Shanghai it is only a little more at 3.6 and 3.7. In London, on the other hand, office users only work 3.1 days a week at their employer’s desk.
Source: Infographic WORLD
“The decline in office use is having an increasing impact on the real estate markets and the dynamics of the large economic metropolises,” says Jan Mischke, MGI partner and co-author of the study. Nine cities considered representative were examined in more detail: San Francisco, New York, Houston, London, Paris, Munich, Shanghai, Tokyo and Beijing.
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vacancies and falling prices
In recent years, analysts have repeatedly examined the direct consequences of the pandemic on office use. However, the McKinsey experts are now daring to look into the future and are also researching the precise reasons why many office workers prefer to work from home in the long term.
Office use will decline particularly sharply in San Francisco
By 2030, overall office demand in the nine cities will fall by an average of 13 percent. However, this only applies in a “moderate” scenario. Under certain conditions, for example if rents remain high and interest in working from home continues to increase, many more employees could want to work from home in the future.
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However, the differences between the cities are clear. The center of San Francisco, for example, consists largely of offices, but at the same time the distances for commuters are particularly long due to the surrounding urban structure with large single-family housing estates. The result: by 2030, office use there will probably decrease by 20 percent compared to 2019. In New York it is 16 percent. However, even in Munich, the only German city in the international comparison, offices would be in demand by 16 percent less in 2030.
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And that’s just the “moderate” scenario, according to MGI. In a “serious” scenario, real estate market experts are forecasting a decline of 38 percent for San Francisco, around 30 percent each in London and New York, and even 27 percent in Munich. The demand for retail space in the Bavarian state capital is falling by four to eleven percent.
The fact that Munich got off lightly is due to the more mixed use of the city center. On the other hand, where the planners in the cities have created purely office districts, the absence of employees has a much greater impact, and visitor frequency falls by ten to 20 percent. “Accordingly, a stronger mixed use of the inner cities as well as flexible usage concepts for office and retail space can also be a way to maintain the dynamism of the economic metropolises,” advise the MGI analysts.
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In some places, people are even turning their backs on the city as a whole
It will still be difficult for real estate investors, because the office as a source of return is probably a thing of the past: “In the nine cities examined alone, the value of office space could fall by 800 billion US dollars through hybrid work by 2030. And that doesn’t even take higher interest rates into account,” says MGI partner Jan Mischke.
In some places, people are even turning their backs on the city as a whole. For example, downtown New York City lost 5 percent of its population from mid-2020 to mid-2022, and San Francisco lost 6 percent, according to MGI.
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This not only has to do with the fact that offices before the pandemic had become increasingly cramped and expensive. Many desk workers no longer want to put up with the long journeys to work.
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When asked about the reasons for preferring home office, 20 percent of office workers stated that they primarily wanted to save on commuting times. Eleven percent consider themselves more productive at home, nine percent want to save money by staying in the suburbs.
Source: Infographic WORLD
On the other hand, 20 percent name the better teamwork as the reason for coming to the office, and twelve percent come solely because of their employer’s regulations. Respondents could give dozens of reasons.
“New Work” expert warns against neglecting office work
Even if many people are unfamiliar with the office: “New Work” expert Samir Ayoub, who advises companies with his company on the conversion to more modern workplaces, warns against too little focus on the office. Although home office offers are an important criterion for applicants, companies without any fixed rooms could lose productivity.
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“Creative teamwork didn’t work online,” says Ayoub. “This works much better in face-to-face appointments.” His suggestion: Employers should reorganize and also convert the office space. “The need for standard jobs is rapidly decreasing. So employers can reduce 60 to 70 percent of these places. Instead, new spaces are needed that enable collaborative work.”
Opportunities for more interaction are also important. “Work coffees or a table tennis table. Places where the team comes together and likes to spend time,” advises the expert. Without a “we-feeling” top performance in productivity is otherwise difficult to achieve. “Once an office a week,” says Ayoub, “is therefore mandatory.”
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