A new McKinsey Global Institute report estimates that by 2030, across nine “superstar” cities, Beijing, Houston, London, New York City, Paris, Munich, San Francisco, Shanghai, and Tokyo, there could be a projected loss of $800 billion of office value in real terms. And that’s the “moderate” scenario.

Just over a year ago, researchers from the NYU Stern School of Business and the Columbia University Graduate School of Business concluded that the U.S. office market would lose $500 billion in value.

Both groups pointed to hybrid and work-from-home trends. It was something bound to happen. The older paper started with a 1989 quote from Peter Drucker: “Commuting to office work is obsolete. It is now infinitely easier, cheaper, and faster to do what the nineteenth century could not do: move information and, with it, office work to where the people are. The tools to do so are already here: the telephone, two-way video, electronic mail, the fax machine, the personal computer, and so on.”

Without a doubt, though, the pandemic drove a significant shift in how business was done. “In this research, the McKinsey Global Institute has modelled future demand for office, residential, and retail space in several scenarios,” the report said. “In those scenarios, demand for office and retail space is generally lower in 2030 than in 2019, though the anticipated reductions in our moderate scenario are smaller than those projected by many other researchers.”

The cities the report focused on face “substantial challenges. And those challenges could imperil the fiscal health of cities, many of which are already straining to address homelessness, transit needs, and other pressing issues.”

From survey work, McKinsey determined that office attendance is lower in large knowledge economy firms like professional services, finance, healthcare, real estate, education, manufacturing, etcetera. The reported number of days in the office per week ran from 3 to 3.8. The larger the company, the less time in the office, with companies with 25,000 or more employees seeing just over 3.1 days. The smaller the company, the more time in the office, with businesses that had from two to 49 employees averaging close to 3.8 days.

McKinsey said such evidence as stable in-office rates since mid-2022, expectations and preferences of the number of days in office being close and ten per cent of people surveyed saying they’d likely quit their jobs if forced in the office every day suggest that the “current rate of office attendance could persist.” The U.S. specifically also saw stronger population growth in suburban areas than urban, making an office-tethered job less attractive to millions of workers.

By the estimates, there will be 13 per cent less demand for office space in the median city in the study. In real terms, vacancy rates increased in all cities, transaction volume fell by an average of 57 per cent, average sale price per square foot dropped by 20 per cent, and asking rents were down by 22 per cent.

“Falling demand will drive down value,” as the report noted. “In the nine cities we studied, a total of $800 billion (in real terms) in value is at stake by 2030 in the moderate scenario. On average, the total value of office space declines by 26 per cent from 2019 to 2030 in the moderate scenario and by 42 per cent in the severe one. The impact on value could be even stronger if rising interest rates compound it. Similarly, the impact could be stronger if troubled financial institutions decide to reduce the price of property more quickly they finance or own.”