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Remote vs. in-office work? Hybrid has won

August 16, 2023

In a new research, the McKinsey Global Institute has modeled future demand for office, residential, and retail space in several scenarios. The main finding: hybrid work is here to stay since the demand for office and retail space is generally lower in 2030 than it was in 2019, stabilized at 30 percent below pre-pandemic norms.

“Three and a half days in the office. That’s where we think the convergence will roughly happen,” Jan Mischke, one of the report’s authors, told Fortune executive editor Peter Vanham. “There will be a lot of movement still” before we settle on that number, he added, and it could be 3.9 or 3.2. “But it’s unlikely to be five days and unlikely to be two days.” 

Other highlights:

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

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 percent of its population from mid-2020 to mid-2022, and San Francisco’s lost 6 percent. Urban vacancy rates have shot up. Foot traffic near stores in metropolitan areas remains 10 to 20 percent below pre-pandemic levels.

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 multi-use office and retail space.

Source: McKinsey | Fortune