What is left of empty offices and retail shops?

The new normal leaves commercial property markets in many major cities with vacant premises. A new study offers an answer

Featured faculty: Desmond Tsang
Written by Putro Harnowo

A couple of years have passed since the pandemic subsided and borders reopened. Commercial real estate markets have shown signs of recovery globally, but the progress appears to be much slower than expected. Oddly, in some parts of the world, the market seems to be losing ground.

Commercial property values in European cities such as Berlin, Frankfurt and Paris have been slashed over the past few years. In the US, the office market in business hubs like New York, San Francisco, Los Angeles and Chicago has seen better days. Hong Kong’s commercial real estate market has also been feeling the pinch, with high vacancy rates in both the office and retail segments.

Desmond Tsang, Associate Professor of Real Estate at the School of Hotel and Tourism Management at the Chinese University of Hong Kong (CUHK) Business School, points out that one of the key reasons is reduced human mobility, referring to fewer people physically visiting or moving around, in commercial real estate. Remote working and digital commerce have become the new normal, but many real estate companies are slow to adapt.

“Reduced mobility is here to stay, and hence, commercial real estate demand would be under pressure, although some sectors or regions would be more affected than others,” he says. “For instance, offices in the US would be more deeply affected since remote working is more prominent there than in some other regions like Hong Kong or Singapore.”

His latest study, Human mobility and commercial real estate: Evidence from REIT operating performance, documents how changes in human mobility have become a permanent fixture. Along with Erkan Yönder of Concordia University and his PhD student, Halil Özgür, Professor Tsang found that for office properties, a one per cent decline in human mobility leads to a 1.9 per cent drop in rental revenue, driven by a sudden drop in demand for office space. As the supply cannot adjust quickly, higher vacancies occur.

For retail properties, a one per cent decrease in human mobility increases operating expenses by 2.1 per cent. This is because shopping centres and malls feature common areas like hallways, restrooms, seating areas, courtyards, and the like that require continuous maintenance and enhancement, where operating expenses are fixed regardless of the number of visitors. The shift in shopper behaviour drives retail owners to invest in additional features, promotional events and other campaigns to draw customers back.

The study urges the public and private sectors to monitor and consider human mobility factors when evaluating property performance. At the same time, property owners should develop strategies to respond to the structural shifts or consider repurposing spaces to accommodate such changes.

“The outlook is not all bad, as we may see some conversions from office to residential and some flight-to-quality phenomenon, in which high-end, amenity-rich buildings will fare much better,” Professor Tsang says. “Many brick-and-mortar department stores may face declining sales and the same goes for lower-tier shopping centres and districts, but there could still be value for some new retail concepts, such as experiential retail and food delivery hubs.”

“Reduced mobility is here to stay, and hence, commercial real estate demand would be under pressure, although some sectors or regions would be more affected than others.”

Professor Desmond Tsang

How mobility affects real estate performance

In the study, the researchers utilised Google mobility data that tracks the movement of US citizens to help mitigate the pandemic’s impact from 2020 until the tech giant terminated it in October 2022. They then matched data from Google with local points of interest from an open-source platform, OpenStreetMap, during the same timeline to observe actual changes in human mobility.

Mobility was observed to decline significantly from the second quarter of 2020, when authorities issued stay-at-home orders and closed public facilities, and then further eased by 2022, following the widespread availability of vaccines. Interestingly, despite the social restriction no longer in place, people were still 4.6 per cent less mobile in 2022 compared to before the pandemic. The analyses revealed a persistent decline in mobility due to structural shifts in how people live, work and shop.

To identify local factors behind such a change, the team collected demographic data from the US Census Bureau and then applied a machine learning approach, extending analyses through 2023. Locations with a higher proportion of residents holding a bachelor’s degree or higher were found to experience a greater reduction in mobility. The researchers argue that individuals with higher level of education are more likely to be able to work remotely during and after the pandemic.

To measure the impact of human mobility on commercial real estate, the researchers examined US real estate investment trusts (REITs) data from S&P Global Market Intelligence from 2019 to 2023. REITs own and operate numerous commercial real estate properties and are also publicly traded on stock exchanges, requiring their financial reports to be detailed and transparent.

Their analyses demonstrated that human mobility has a significant impact on REITs’ earnings, with considerable effects on office and retail properties both during and after the pandemic. For both types of properties, a one per cent drop in mobility lowers REITs’ net operating income by 2.8 per cent during the pandemic and by 1.8 per cent post-pandemic.

Hong Kong commercial real estate landscape

Although the study was conducted using US data, Professor Tsang believes that other developed markets are seeing similar trends of decline in human mobility, including Hong Kong. “There are many different reasons for mobility changes in different regions, making reduced mobility remain in many parts of the world in 2025,” he says. “For the US, it goes back to work-from-home and flexible work models. For Hong Kong, decreased mobility in some central areas stems from the travel flows between Hong Kong and mainland China after the pandemic.”

Mainland Chinese visitors have always been the largest group of tourists in Hong Kong, but their numbers have yet to return to pre-pandemic levels, according to the city’s tourism board. On the other hand, an increasing number of Hong Kong residents prefer to spend weekends and holidays in mainland China due to more affordable options, which affects the city’s commercial real estate rent.

As Hong Kong landlords and retailers battle against shifting consumer habits and a wave of store closures, Professor Tsang suggests businesses must devise plans to reduce operating costs while sustaining revenue and enhancing their brand reputation. “Focusing on new and innovative ways of shopping and retail is a possible strategy,” he adds.

For instance, he suggests encouraging more mixed-use developments by integrating living, working and leisure spaces with a 24/7 urban ecology rather than traditional retail, or adopting holistic district renewal instead of revitalising isolated building projects.

The study with US data found that mobility dropped significantly near commercial areas, restaurants, banks and schools due to pandemic restrictions and lasting changes, such as remote work. Areas near warehouses, industrial buildings and farms saw smaller declines, as these places often depend on physical presence and were less impacted by remote work trends. To extend the findings in the Hong Kong market, more data are needed to measure the magnitude of mobility’s impact accurately.

“Some companies track cell phone data for the Hong Kong market and this can be put to good use to understand travel patterns and office utilisation in different areas,” he adds. “It would be interesting to see whether mobility patterns in commercial hubs that are more remote would be different from those in downtown areas. This relates to the importance of location in human mobility and commercial real estate performance, which, in essence, we examine as a novel mechanism for mobility change.”