McKinsey & Company’s report Empty spaces and hybrid places: the pandemic’s lasting impact on real estate charts why multi-use development can offset the urban consequence of COVID-19 in superstar cities.
Writes McKinsey & Company in the newly released report on the pandemic’s impact on real estate in major urban areas: ‘The behavioral changes caused by the pandemic—lower office attendance, accelerated out-migration from cities, and less shopping in office-heavy neighborhoods—will push down demand for real estate in most superstar cities.’ The consulting firm defines these cities as those with ‘disproportionate share of the world’s urban GDP and GDP growth’ – examples being San Francisco, Tokyo and Paris.
Widespread adoption of – and the continued preference for – hybrid work is at the root of these behavioural changes. This new reality, states the report, ‘worsens vacancy rates, threatens the vibrancy of neighborhoods, and thus makes urban cores less attractive to employers, employees, and residents.’ Work, retail and residential sectors will all see lasting change. What to do? Fighting fire with fire – i.e., more hybridity – may actually be the way forward. According to McKinsey’s study, mixed-use neighbourhoods were more resilient during the pandemic than office-dense areas. ‘At the neighborhood and building levels, and even in the design of the floors of buildings, choosing diversity, adaptability, and flexibility rather than homogeneity can help cities thrive.’
Cover image and above: Agility has emerged as one of the most salient post-pandemic office design themes. Enabling flexible working, Ply Atelier’s design of the Ramboll Berlin office incorporates a variety of workspaces that accommodate different user groups and modalities of work.
One of the most telling findings from the investigation – which surveyed 13,000 full-time workers in China, France, Germany, Japan, the UK and the US – is that demand for office and retail space will drop by 13 per cent in 2030, as compared to 2019; in a worst-case scenario, this number shoots to 38 per cent. Not surprising considering 10 per cent of those questioned said they were likely ‘to quit their jobs if required to work at the office every day and willing to take a substantial pay cut if doing so let them work from home when they wanted.’ McKinsey projects that there will be between 7 to 21 per cent excess supply of office space in 2030. There’s thus much room to investigate how this space can best be utilized, to the health of cities and their inhabitants.
Atelier du Pont’s Paris office provides an agile work experience by including a variety of spaces that accommodate social and productive activities. In addition, the building has been designed to be able to be converted into housing in the future when its current use is no longer required.
‘Hybrid buildings would bring at least two advantages,’ explain the authors. ‘One is that they would protect owners from shifts in preferences that are impossible to predict now. The second relates to a current trend toward shorter leases in the office sector. Because tenants will now be moving in and out more frequently, buildings might become more valuable if they grow more adaptable.’ With companies needing less space, superstar cities are seeing those still invested in physical roots opt for high-quality properties – in NYC, for instance, ‘the average sale price per square foot rose 3 percent for Class A buildings’ during an examined period. Class B and Class C locations, meanwhile, saw drops, which McKinsey credits in part to the inability of these structures to efficiently accommodate hybrid work. Imaginative adaptive reuse solutions can ensure that these sites do not go undervalued and unused, especially with cities’ ever-growing need for residential, educational and public facilities. If left to age and become decrepit, they ultimately reduce property values overall.
This touches on a greater issue. ‘Unfortunately, the downward pressure on prices and rents is unlikely to make residences in superstar cities—many of which suffer from expensive housing and homelessness—much more affordable.’ The report points out that, in contrast to office space, any available residential floor space is quickly taken once prices and rents lower. Indeed, the ‘vacancy rates in urban cores have already increased less sharply than urban out-migration would suggest.’ ‘Expensive homes, high office density, a high share of workers in the knowledge economy, and a low share of workers in retail’ are contributing factors to suburbanization, ultimately taking resources away from urban development.
McKinsey says that brands ‘may have to “earn the commute” by designing spaces that cater to many different uses, aligning with the rise of experiential retail and shopping destinations that combine sales with hospitality, events and more. The Rotterdam location of electric car manufacturer Nio, which intentionally de-prioritises the showroom space in favour of other spatial activations, is a case in point.
In this rapidly shifting urban landscape retailers also need to update their approach to spatial development. The threat of e-commerce to bricks-and-mortar retail, however, gave companies a head start in forging a path toward sustained relevance. McKinsey says that brands ‘may have to “earn the commute” by designing spaces that cater to many different uses, aligning with the rise of experiential retail and shopping destinations that combine sales with hospitality, events and more. ‘The decline in spending has not been as steep as the decline in foot traffic: shoppers have consolidated trips, making purchases more frequently when they do visit stores and spending more per trip,’ states the report. ‘The most successful retailers are rethinking their store formats to support omnichannel experiences—those in which customers’ in-store and online experiences, including the marketing aimed at them, are integrated.’
Integration and fluidity will empower the hybridization of our everyday lives. This design approach does not only respond to the situational after-effects of the pandemic, but also to globalization and digitization. It’s holistic thinking that builds resilience.
