McKinsey study: Hybrid work may slash office property values by $800B by 2030.

A Shift to Remote Working Could Impact Office Building Values

A study published by consulting firm McKinsey suggests that by 2030, the value of office buildings in major global cities could decrease by $800 billion due to the shift towards remote working.

The study focused on nine “superstar” cities, including Beijing, Houston, London, New York City, Paris, Munich, San Francisco, Shanghai, and Tokyo. It revealed that the demand for office space in these cities is expected to be 13% lower in 2030 compared to pre-pandemic levels in 2019.

“Superstar” cities are known for their significant share of the world’s urban gross domestic product (GDP) and GDP growth.

The study also highlighted that employees continue to spend less time working at the office compared to pre-pandemic times. Remote working has contributed to a migration away from prime cities, influenced by work-from-home models and the availability of cheaper housing in suburban areas.

In response to the COVID-19 pandemic, tenants have reduced their office real estate, and many companies have adopted a permanent hybrid work model.

“The decline in demand has prompted tenants… to negotiate shorter leases from owners,” stated the McKinsey report. It also mentioned that these short-term leases might make it more challenging for property owners to secure financing.

In addition to rising vacancy rates, commercial property firms worldwide are facing significant declines in property valuations due to increased borrowing costs and a high-interest rate environment. This has led investors to explore more profitable avenues.

The survey also noted that troubled financial institutions could further impact property values if they decide to quickly reduce the value of the properties they finance or own.

The McKinsey report arrives at a time when global economies are navigating various macroeconomic challenges, including elevated inflation, high-interest rates, and mounting recession fears.

(Reporting by Aby Jose Koilparambil in Bengaluru; Editing by Shilpi Majumdar)

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