Originally published on July 13, 2023, by the McKinsey Global Institute.
When the COVID-19 pandemic began, it dramatically changed the way people worked, lived, and shopped in cities around the world. The starkest change was where and how they worked. Obeying lockdowns and office closures, tired of uncomfortable masks, and enabled by remote-work technology, many employees abruptly retreated from traditional offices to home offices. Many of those employees, newly freed from their daily commutes, chose to move out of urban cores. And now that fewer of them were working and living near urban stores, fewer of them shopped there. In recent months, some of those behavioral shifts have slowed. Others persist, particularly among office employees continuing to engage in hybrid work (that is, a combination of remote and in-office work).
The behavioral shifts have already had major effects on real estate in “superstar” cities—roughly speaking, cities with a disproportionate share of the world’s urban GDP and GDP growth. In superstar cities’ urban cores, the percentage of office and retail space that is vacant has grown sharply since 2019, and home prices have increased more slowly than in the suburbs and other cities.