U.S. Office Values Set to Decline by $500B by 2029: Report

Non-trophy offices in particular could become ‘a stranded asset’ as remote work trends take their toll, making conversions seem increasingly inevitable

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More than two years into the pandemic, the impact of workplace occupancy trends is becoming clearer – and bleaker. New research by a joint team from NYU Stern School of Business and Columbia University Graduate School of Business project that U.S. office buildings will collectively lose $500 billion in value, or 28 percent, by 2029 if current remote work patterns persist long-term and office buildings are left vacant.

However, it stops short of saying how valuable office properties would be if converted to other uses.

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The academic study “Work From Home and the Office Real Estate Apocalypse” found that higher quality office buildings were somewhat buffered from the changing work habits due to a flight to quality in the marketplace, while the swings were projected to be greater for lower-quality office buildings. Overall, the results could have drastic repercussions for municipalities that depend on property tax revenue associated with office buildings and related retail while upending financial sectors that depend on returns from property investments.

“Shifts in projected office demand have led to concerns that commercial office buildings may become a stranded asset in the wake of the technological disruptions resulting from remote work,” the paper said.

For New York City, the study estimated that office buildings had a pre-pandemic value of $175 billion and values could drop by $49 billion over the next seven years. It documented large shifts in office occupancy and lease revenues to quantify the impact of remote and hybrid work on the office sector. Near-term declines in office values were even higher at 32 percent at the onset of the pandemic in 2020.

“Because a large fraction of leases have not come up for renewal yet since the start of the pandemic, and because vacancy rates are already at 30-year highs in several major markets, rents may not have bottomed out yet,” the report stated.

Many companies signed short-term renewals during the pandemic so the period from 2023 through 2025 will have an above average number of leases expiring compared to historical averages. Newer buildings with high-quality amenities have benefitted from changing work habits and have signed leases at rents above pre-pandemic levels in some cases.

“Lower-quality office stock appears to be a more substantially stranded asset, given lower demand, raising questions about whether these assets can be ultimately repurposed towards other uses,” the report said.

David Nusbaum can be reached at dnusbaum@commercialobserver.com.