For Banks, Commercial Property is a Risk — and an Opportunity.

Arpit Gupta

By Arpit Gupta and Stijn Van Nieuwerburgh

The commercial real estate industry is facing the triple threat of remote work, higher interest rates and more regulation. For Americans, there is an awful lot at stake. The $20 trillion market is a bellwether for the wider U.S. economy, and its ill health has wide-ranging consequences, with risks especially high for the country’s troubled regional banks.

Policymakers should act now to soften the blow.

The numbers are alarming. The transition to remote or hybrid work has seen office lease revenue fall 19 percent since the start of covid, while vacancy rates are hitting all-time highs. Our research suggests the value of office buildings in New York City might have already fallen by 40 to 45 percent, and other cities will be hit even harder. Nationwide, we project a decrease of $500 billion in the overall value of commercial office buildings.

Read the full Washington Post article.

Arpit Gupta is Associate Professor of Finance.