A joint study by NYU and Columbia University shows that office estate will lose 28% in value in 7 years because of remote work.
If most Americans moved to more affordable locations during the pandemic, now most companies are adopting hybrid models. As a result, remote work impacts the demand and value of office buildings.
The academic study Work from Home and the Office Real Estate Apocalypse expects a ‘value destruction in the US office sector. If the hybrid and remote work boom takes root, on-site workplaces will lose over $500B by 2029.
As the paper quotes: “We show that the pandemic has had large effects on both current and expected future cash flows for office buildings. Remote work also changes the risk premium on office real estate.”
For example, data from the NYC office market’s study produced estimated value destruction of $49B by 2029. Furthermore, data from 105 US office markets show an 8% decrease in lease revenue from January 2020 to December 2021. Finally, while two-thirds of office leases renovated the space during the pandemic, office building occupancy levels are still below 43%.
The impact of remote work on office estate resonates with the whole financial system. Most big cities have numerous office towers that will most likely stay half-empty. As people change their habits to welcome a more flexible schedule, the consequences impact office estate and traditional workplaces.