Remote Work Deals Devastating $506B Blow To Office Property Values

What’s going on:      

Researchers from New York University’s Stern School of Business and Columbia Business School published an updated version of an October 2022 research paper entitled “Work From Home and the Office Real Estate Apocalypse.” The research found that remote work led to a significant decline in lease revenues, occupancy, lease renewal rates, and market rents in the commercial office sector. 

According to the abstract, “We revalue New York City office buildings taking into account both the cash flow and discount rate implications of these shocks, and find a 44% decline in long run value. For the U.S., we find a $506.3 billion value destruction.” 

Why it matters:         

The shift to remote work has had a more significant impact on office property values than what was initially anticipated in the first version of the paper. The decline in demand for traditional office spaces is affecting commercial real estate owners, investors, developers, brokers, and finance professionals, who are now seeking innovative ways to adapt to the changing landscape. 

How it’ll impact the future:        

The rise of remote and hybrid work is reshaping the commercial real estate market in major cities like New York City and San Francisco.  

Remote work trends could lead to a long-term transformation of commercial property leasing and purchasing decisions. If the trends persist, industry stakeholders will need to adapt by finding innovative ways to repurpose existing office spaces, perhaps even transforming properties into coworking spaces.