A major upheaval reduced demand for office space on a global scale. The question now is, what’s the future of the office?
It’s been a year and a half since McKinsey published “Empty spaces and hybrid places: The pandemic’s lasting impact on real estate.” The comprehensive report examined the effect the COVID-19 pandemic had on office attendance, occupancy, and demand. It also examined related factors, including residential moves from urban centers to the suburbs (which may mean fewer visits to the office) and online versus in-person shopping (which may affect the vibrancy of a downtown retail scene) (exhibit).
Image description.
The chart shows the projected change in demand for office space, retail space in urban cores, and residential real estate in urban cores in nine major cities around the world between 2019 and 2030.
The nine cities studied were Beijing, Houston, London, Munich, New York City, Paris, San Francisco, Shanghai, and Tokyo.
Demand for office space is projected to decrease in seven of the nine cities, most notably in San Francisco at -20%, New York City at -16%, and Munich at -16%. Beijing and Houston are projected to have 2% increases.
The demand for retail space in urban cores is projected to decrease in eight of the nine cities, with London experiencing the most significant drop at -22%. The one city with a projected increase is Shanghai at 1%.
Conversely, the projected demand for residential space in urban cores shows a positive trend, with increases in seven of the nine cities. Houston leads the pack with a projected increase of 26%, and Tokyo sees a 12% increase. Paris and San Francisco are projected to have decreases of -4% and -2% respectively.
This image description was completed with the assistance of Writer, a generative AI tool.
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The report concluded, in short, that demand for offices—at least as currently designed and delivered—is likely to be lower by 2030 in many cities. This reality poses a challenge to real estate owners, operators, and the companies that occupy offices: to conceive of a new generation of spaces that best supports future achievements. But the behavioral sea change isn’t just relevant to office stakeholders. Owners and operators of retail and residential real estate can also benefit by considering how patterns of life have changed and how to modernize properties in response.
This interactive presentation brings McKinsey’s modeled data to life in a series of visual representations. It then proposes the four crucial attributes of the offices of the future: They need to be spaces with purpose, for connectivity, that are digitally enhanced, and that are oriented around sustainability. Join McKinsey experts in real estate and organizational performance in this deep dive into what happened, what could be next, and what’s the future of the office.
The future of the office
The era of cubical-farm offices has ended—and it will not be missed.
An office floor filled with beige-colored, carpeted flooring and rows of cubicles that all look the same. Each cubicle contains a desk, chair, and is lit by overhead fluorescent lighting.
The upheaval
The COVID-19 pandemic unraveled long-standing workplace norms and ushered in a new era for office real estate. While the effect varied by city, the global impact was a significant decrease in daily office attendance and an overall reduction in demand for office real estate.
3.5
days per week is now the stabilized average for office attendance
−13%
is the likely decrease in demand for office space in 2030 compared with 2019 in the median city studied
$800B
is the total value (in real terms) of office real estate at stake by 2030 in the nine cities studied
The aftermath
Leaders of companies that own and operate office buildings and of companies that occupy offices face the challenge of rethinking these spaces. Many existing office buildings were designed and built for a bygone era. The office of the future has to be a place that supports the following four interconnected criteria.
Offices with purpose
At one time, the purpose of the typical office was to provide people with space and equipment to do their day-to-day work. Today, the purpose of the office varies by sector, location, organization, and team.
Offices with purpose might include these elements:
They are in prime locations, offer top-notch amenities, and have interiors that can be rearranged as needed. Companies may choose smaller spaces and redeploy funds to high-quality offices.
They have well-defined working practices. Employees know not just when they have to be in the office but why.
I haven’t given up hope for the office, but I do think landlords have to create a different relationship with tenants and provide services that actually help those tenants achieve better outcomes. To beat the working-from-home alternative, spaces should ‘earn the commute,’ and you do that by creating space where people actually want to work, not just the space where they have to work.”
They are designed not just for day-to-day work but for activities including gathering, sharing knowledge, learning new skills, brainstorming, welcoming stakeholders, and celebrating.
They are adaptable to the results of a test-and-learn strategy that gives leaders insight into how the workplace experience impacts performance.
They encourage a positive connection between employees and the workplace by supporting well-being. Offices are designed to resolve the pain points in an employee’s “customer journey” throughout the workday.
The ideal office of the future will be conceived and designed as a place that cultivates social capital. Social capital, simply defined, is the presence of networks, relationships, and connections within any organization or, more broadly, community or culture.”
The digital office is one that both reflects the increasingly digital world and uses digital solutions to make offices more efficient, productive, comfortable, and responsive to change.
Digitally enhanced offices might include these elements:
They are designed with generative-AI-assisted tools that integrate thousands of data points, including where natural light and foot traffic fall most regularly.
They include modular elements that can be altered as work evolves, an important consideration as AI changes the nature of many jobs.
What has been contained thus far to equipment and infrastructure will extend to design and user experience, resulting in spaces that are more adaptive, personalized, and responsive to individual needs. Spaces that are purpose-built for modern working patterns ought to become the norm. AI’s impact, currently nascent, will enable elevated levels of hospitality and experience, as well as the large-scale automation of many tasks that humans perform today, including security, maintenance, and facility management.”
Offices that can be described as sustainable meet two general criteria. Their operators work toward decarbonizing building operations, ideally on a pathway to achieving net zero. They also support the well-being of their occupants by integrating natural elements, providing healthy air, and enabling access to the outdoors.
Offices that are sustainable might include these elements:
For office owners, the pressure to decarbonize comes from multiple angles. There are regulatory pressures to improve energy efficiency and decarbonize buildings and pressures from tenants looking for offices that help them fulfill their own net-zero commitments. Many major investors’ capital goes to the office owners and occupiers who can help them meet their net-zero commitments. The good news is that it’s often possible for an office building to get to full operational net-zero emissions in a financially neutral or positive way. And the ways to do it exist at scale today.”
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This article was edited by Katy McLaughlin, an executive editor in the Southern California office.
This interactive experience is a collaborative effort led by McKinsey Global Publishing, with contributions from Dana Sand, Diane Rice, Janet Michaud, Julie Macias, Katie Shearer, Matt Perry, Maya Kaplun, Nayomi Chibana, Stephen Landau, and Vicki Brown.
