Remote work could spark an $800 billion crash in office prices around the world

FILE PHOTO: People walking past office buildings at the central business district in Singapore

Reuters

• Office buildings could suffer an $800 billion crash as work-from-home remains popular, per a new McKinsey report.
• Office attendance is still down 30% from levels prior to the pandemic, researchers said.
• Office prices could see a 26% drop by 2030, or a 42% drop in a more severe scenario, the consulting firm estimated.

Office buildings around the world could suffer an $800 billion wipeout as work from home trends persist, according to a new report from the McKinsey Global Institute.

The consulting firm pointed to the lasting impact the pandemic has had on office attendance, with 30% fewer workers commuting to the office compared to levels prior to the pandemic. 

Those effects will stick around for decades, researchers said, estimating that office demand will be as much 20% lower in 2030 compared to 2019 in some cities in moderate scenario. In a more severe scenario, demand could be 38% lower by 2030.

That could deal a major blow to commercial landlords, who are expected to struggle as companies abandon their unused office spaces. In a moderate scenario, office prices could plunge 26% through 2030, compared to levels in 2019. In a more severe scenario, prices could plunge as much as 42%, researchers said -- in line with what other economists have predicted for the sector.

Even the moderate scenario could bring a total of $800 billion in losses to the value of office properties across nine large metropolitan areas around the world, McKinsey estimated, including New York City, San Francisco, and Houston. 

The pressure on office buildings adds to the turmoil brewing in the commercial real estate market, with experts warning of a 40% crash in prices, thanks to lower demand and tighter credit conditions. The sector has around $1.5 trillion in debt that's set to mature in the next three years, Bank of America estimated, which could lead to a string of defaults and a commercial real estate crash that could rival 2008.

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