McKinsey Releases Report on the Pandemic's Lasting Impact on Real Estate

“Empty spaces and hybrid places: The pandemic’s lasting impact on real estate,” a massive, in-depth, 88-page report from McKinsey Global Institute and McKinsey’s Real Estate Practice, released July 13, is definitely worth the price of admission. (It’s a free download). Here are highlights from the Executive Summary: **Hybrid work is here to stay.

** As a result, office attendance has stabilized at 30% below prepandemic norms. The ripple effects of hybrid work are substantial. Untethered from their offices, residents have left urban cores and shifted their shopping elsewhere.

For example, New York City’s urban core lost 5% of its population from mid-2020 to mid-2022, and San Francisco’s lost 6%. Urban vacancy rates have shot up. Foot traffic near stores in metropolitan areas remains 10% to 20% below prepandemic levels.

Demand for office and retail space in superstar cities will remain below prepandemic levels. In a moderate scenario that we modeled, demand for office space is 13% lower in 2030 than it was in 2019 for the median city in our study. In a severe scenario, demand falls by 38% in the most heavily affected city.

Real estate is local, and demand will vary substantially by neighborhood and city. Demand may be lower in neighborhoods and cities characterized by dense office space, expensive housing, and large employers in the knowledge economy. **

• Cities and buildings can adapt and thrive by taking hybrid approaches themselves.

** Priorities might include developing mixed-use neighborhoods, constructing more adaptable buildings, and designing multiuse office and retail space. Big picture? “Real estate in the world’s superstar cities has not kept up with shifts in behavior caused by the pandemic.