Real estate in major cities has been experiencing difficulty adapting to shifts in behavior and its consequences. During the pandemic, attendance in offices decreased because of an increase in hybrid and remote work. According to the McKinsey Global Institute; office attendance is 30 percent below pre-pandemic norms. This rate of attendance is likely to continue as it has steadily since mid-2022.
Hybrid work has had a ripple effect. The increase in remote work has led to out-migration. Urban cores have experienced increased out-migration that is higher than pre-pandemic levels. In the McKinsey study, workers migrated to the suburbs because of the higher possibility of home ownership, safer neighborhoods, and green space. Those in Japan and China cited the possibility of home ownership as a strong motivation for out-migrating.
Urban vacancy rates have increased, and foot traffic surrounding stores in urban cores remains below pre-pandemic levels. Cities in the United States have suffered more than cities in the United Kingdom, and Japan because US cities included fewer mixed-use developments in which multiple kinds of spaces reside together. Migration trends in Beijing were shaped primarily by previous population control efforts.
Major cities have also experienced a decrease in demand for retail and office space. McKinsey Global Institute predicts that in the most severe case, demand could fall by 38 percent in the most heavily affected metropolitan areas. Real estate demand varies by neighborhood and city. Cities that feature dense office space, high-priced housing, and large knowledge economy employers may be more likely to experience a decrease in demand.
Cities can better adapt to this changing landscape by including adaptable buildings, and multiuse spaces where retail, housing, and office space can reside. Thinking about office spaces as spaces that can be flexible and enjoyable can contribute to efforts to increase office use.
Read more about this story at McKinsey Global Institute.