Researchers from New York and Columbia Universities are predicting that the value of office buildings could dwindle in the coming years.
According to the “Work From Home and the Office Real Estate Apocalypse” study, the popularity of remote work could lead office valuations in New York City to fall 28% by 2029, which would represent a value destruction of $49 billion.
If this trajectory continues, the report predicts that around $500 billion in office assets valuations would be wiped out by 2029.
“Remote work changes the risk premium on office real estate,” the report said. “Office returns, in other words, are now pricing in the risk that remote work might be an important risk for offices.”
The study was able to identify which factors are most impacting office usage, including changes in lease revenue, occupancy levels, renewal levels, and lease durations.
Using analysis from 105 U.S. office markets, the report was able to find that lease revenue fell 8 percentage points from January 2020 to December 2021 as a result of lower rent and leasing volume.
The data also indicates that rent in general could fall in the near future, with 73% of New York leases not up for renewal since the beginning of the pandemic.
However, for Class A Buildings, a different story is unraveling.
“Higher-quality office buildings were somewhat buffered against these trends due to a flight to quality, while lower quality office buildings see much more dramatic swings,” the authors of the report stated.