{"id":1004672395,"date":"2023-07-17T04:08:54","date_gmt":"2023-07-17T12:08:54","guid":{"rendered":"https:\/\/www.commercialsearch.com\/news\/?p=1004672395"},"modified":"2023-07-26T04:55:29","modified_gmt":"2023-07-26T12:55:29","slug":"how-will-office-space-values-fare-in-2030","status":"publish","type":"post","link":"https:\/\/www.commercialsearch.com\/news\/how-will-office-space-values-fare-in-2030\/","title":{"rendered":"How Will Office Space Values Fare in 2030?"},"content":{"rendered":"
\"Houston<\/a>

Houston skyline. Image by Larry Gibson\/iStockphoto.com<\/em><\/p><\/div>\n

How\u2019s this for short and to the point: \u201cThere will be less demand for office space,\u201d with just a \u201cmoderate scenario\u201d predicting a median 13 percent decline in major cities globally by 2030, in parallel with an excess supply of office space (beyond average historical vacancy) of 7 to 21 percent.<\/p>\n

Across nine global \u201csuperstar cities,\u201d the value of office space is expected to decline by 26 percent under that moderate scenario\u2014and by 42 percent under a severe one. At stake is $800 billion in the value of office space in just nine cities by 2030.<\/p>\n

All this and more is from a new report, Empty spaces and hybrid places<\/a>, by McKinsey & Co<\/strong>.\u2019s real estate practice and the McKinsey Global Institute<\/strong>.<\/p>\n

Although the message isn\u2019t necessarily surprising<\/em> to anyone who\u2019s in commercial real estate, the extent<\/em> of those demand and value drops is sobering.<\/p>\n

The report states that the decline in value is already occurring, as capitalization rates for office space in the U.S. have risen from 5.8 percent to 8.0 percent over the past three years, implying value erosion of more than 35 percent before accounting for net operating income decline.<\/p>\n

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READ ALSO<\/strong>: Remote Work Shapes Office Sector<\/a><\/p>\n

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In the worst cases, the report continues, the owners of buildings whose values have fallen will hold less equity in relation to debt, making it harder for such owners to get financing<\/a>. As a result of a \u201cdoom loop\u201d like that, \u201caging and low-quality properties may remain unrenovated or not repurposed, further reducing property values.\u201d<\/p>\n

This in turn could be aggravated by the ongoing \u201cflight to quality,\u201d as office tenants act on their desire for better and better-amenitized spaces.<\/p>\n

What\u2019s driving all this are three trends, McKinsey says:<\/p>\n