Originally Published: 13 JUL 23 08:12 ET

By Hanna Ziady, CNN

London (CNN) — Remote work risks wiping $800 billion from the value of office buildings in major cities worldwide by 2030 as the post-pandemic trend pushes up office vacancy rates and drives down rents, according to a new report.

Office attendance has stabilized at 30% below pre-Covid norms and only 37% of workers are going into the office every day, McKinsey Global Institute said in a report Thursday.

The research adds to a string of recent signs that lasting changes to working habits because of the pandemic are hurting the value of commercial real estate — a market also under strain from rising interest rates. Last month, HSBC (HBCYF) announced plans to halve the size of its global headquarters, giving up its imposing tower in London’s Canary Wharf business district for a much smaller building close to the city center.

“Hybrid work is here to stay,” McKinsey said. “Urban real estate in superstar cities around the world faces substantial challenges. And those challenges could imperil the fiscal health of cities, many of which are already straining to address homelessness, transit needs, and other pressing issues.”

McKinsey looked most closely at nine “superstar” cities with a disproportionate share of the world’s urban gross domestic product, namely Beijing, Houston, London, New York, Paris, Munich, San Francisco, Shanghai and Tokyo.

The estimated $800 billion in valuation losses in those cities represents a 26% decline from 2019 levels. In a more severe scenario, the value of office space could fall by as much as 42%, the consultancy said.

“The impact on value could be even stronger if rising interest rates compound it,” McKinsey added. “Similarly, the impact could be stronger if troubled financial institutions decide to more quickly reduce the price of property they finance or own.”

There are fears that a downturn in commercial real estate could cause losses at banks, which finance many of the industry’s deals. In the United States, where lending comes mostly from small and mid-sized banks, credit conditions have already tightened.

Waning demand for office space has driven down landlords’ asking rents, with US cities suffering the sharpest falls, McKinsey found. In San Francisco and New York last year, asking rents fell 28% and 22% respectively, compared with 2019, once inflation is taken into account.

In a moderate scenario, demand for office space could be 13% lower by the end of the decade than it was in 2019.

While the rate at which people are moving out of cities has returned to its lower pre-pandemic trend, “few of the people who left will return” and “urban shopping will not fully recover,” the consultancy said.

Foot traffic near stores in urban areas remains 10-20% lower than it was before the pandemic, partly driven by growth in online shopping.

McKinsey said cities could adapt to the declining demand for office space by “taking a hybrid approach themselves,” developing multi-use office and retail space and constructing buildings that can be easily adapted to serve different purposes.

In an interview at Bloomberg’s Technology Summit last month, San Francisco Mayor London Breed proposed remaking the struggling city’s downtown by tearing down abandoned retail space, including Westfield mall. She suggested a laboratory or soccer stadium could be built in its place.