Originally published June 2021.

As space requirements fall for offices and retail, residential will fill the gap.

Much of the reflection on post-pandemic shifts in property has been focused on individual sectors, but how these interact with each other will also be key to the outlook for the urban locations where real estate is clustered. And while it is premature to declare the death of cities, their built environment is likely to change significantly.

Once the virus passes, global cities’ clusters of high-productivity industries and their strong amenity will continue to draw workers, residents and tourists. This attraction has historically underpinned a resilience to even the most extreme shocks, and Covid-19 isn’t expected to be different. But there will be changes, with property at the forefront. Offices will take a major hit as the rise in home-working reduces demand, curbs development and squeezes investor incomes over the longer term. Demand is set to shrink by around 10% across global markets over the decade, and city-centre offices will bear the brunt.

As cities re-emerge post virus, the initial exodus of urban residents to suburbs is likely to slow

Home-working will also influence residential markets, as people will have less need to live close to their workplace. But as cities re-emerge post virus, the initial exodus of urban residents to suburbs is likely to slow. And a supply of obsolete retail and office space will create opportunities for city apartments, though a desire for bigger units and constrained incomes will limit investment performance.