TODAY’S NEWS. TOMORROW’S INSIGHTS.A daily newsletter from McKinsey & Company
Brought to you by Liz Hilton Segel, chief client officer and managing partner, global industry practices, & Homayoun Hatami, managing partner, global client capabilities
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Office blues. Roughly one-third of full-time workers in the US work at least partly from home, according to recent research. Since 2019, many US offices have become vacant, with one city’s empty office space rising above 70%. If such trends continue, that city’s office building values could eventually decrease by as much as $50 billion, research by Columbia and New York Universities finds. Commercial real estate leaders could spruce up office buildings, convert them to be used for some other purpose, walk away, or wait to see what happens. [NYT]
Making over downtowns. According to experts, US downtowns are experiencing their most substantial transformation in half a century. In the 20th century, city skylines were upgraded from factories to office skyscrapers, transforming the source of cities’ economic vitality. Today, the work-from-home trend has led to over one billion square feet of empty office space throughout the US, which developers hope to turn into housing. One city plans to convert 7%, or 2.4 million square feet, of its office space into apartments and other spaces. [WSJ]
Neighborhoods transformed. New research from the McKinsey Global Institute reveals that hybrid work is now a work–life staple. It has affected where we work, live, shop, and socialize, and creates opportunities for a real estate rethink. A substantial number of knowledge workers would prefer to resign or accept a pay cut rather than come into the office more, senior partners Aditya Sanghvi and Jonathan Woetzel share on an episode of The McKinsey Podcast. By 2030, the total value of office space could be 26–42% lower in the nine cities studied, a potential loss of $800 billion in office real estate value.
Real estate, reimagined. There’s a big variation in how cities have been affected by the shift to hybrid work, Sanghvi says. Places that include a good mix of retail, restaurants, housing, and offices are potentially experiencing higher demand. With the decline in office space demand, affordable housing can be reassessed. By reconsidering the affordability of the neighborhood, perhaps the “single biggest piece” of household expenditure—rent—can be addressed. Listen to the episode of The McKinsey Podcast, “The future of real estate in a hybrid world,” to discover more ways real estate may be transformed in the future.
— Edited by Vanessa Burke, editor, Atlanta
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