The work entitled: “Working from home and the real estate apocalypse of the office”elaborado por Arpit Gupta, Vrinda Mittal y Stijin van Nieuwerburg, found a 33% decline in office values in New York around the time of the pandemic, which represents $57,700 million and of the 28% in the longer term, about $49,000 million more.
The Covid-19 pandemic caused drastic changes in the workplace of people. Physical office occupancy in major US office markets fell from 95% at the end of February 2020 to 10% at the end of March 2020and has remained depressed ever since, only gradually returning to 50% in May 2022.
The study considered all properties in the US and found a 32% decline in office values in 2020 and 28% in the long termwhich represents $500 billion of value destruction.
The work analyzed the impact of the home office in the commercial office sector, finding great changes in the rental income, office occupancy, lease renewal rates, lease durations, and market rents as companies shifted to remote work in the wake of the Covid-19 pandemic.
According to the authors, the pandemic has had large effects on both current and expected future cash for office buildings.
According to the analysis, the highest quality office buildings cushioned the effects somewhat, while the lower quality office buildings underwent many more dramatic changes.
That could indicate a shake-up in office space not unlike what happened with shopping malls, meaning that the best real estate stays, while the more intermediate properties end up being repurposed for other purposesor rented by companies that previously could not pay those rents.
The importance of the analysis lies in the fact that these valuation changes have repercussions on local public finances and on the stability of the financial sector.
For more details on the analysis, Enter here.
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