Research Highlights

Work From Home and the Office Real Estate Apocalypse

Arpit Gupta

In “Work From Home and the Office Real Estate Apocalypse,” NYU Stern Professor Arpit Gupta and co-authors Vrinda Mittal and Stijn Van Nieuwerburgh (Columbia Business School) analyze the impact that remote work has had on the New York City commercial office space sector.

In “Work From Home and the Office Real Estate Apocalypse,” NYU Stern Professor Arpit Gupta and co-authors Vrinda Mittal and Stijn Van Nieuwerburgh (Columbia Business School) analyze the impact that remote work has had on the New York City commercial office space sector.

Overview: In “Work From Home and the Office Real Estate Apocalypse,” NYU Stern Professor Arpit Gupta and co-authors Vrinda Mittal and Stijn Van Nieuwerburgh (Columbia Business School) analyze the impact that remote work has had on the New York City commercial office space sector.

Why study this now: The Covid-19 pandemic drastically altered the manner and location in which people worked. Of the major U.S. cities analyzed by the co-authors, between the end of February 2020 to the end of March 2020, physical office occupancy fell from 95% to 10%. The researchers aim to assess the implications of future remote work on the valuations of office buildings.

What the researchers found: Analyzing shifting lease revenues, office occupancy, lease renewal rates, lease durations, and market rents during the pandemic, the researchers determined that:
  • In the NYC office market, there was a 32% decline in the values of offices in 2020, and a 28% decline in future values.
  • Higher quality office buildings (those that are built more recently and have more amenities) were somewhat protected against the declines, while lower quality buildings saw dramatic swings in valuation.
  • Extrapolating their estimates to the rest of the country, as hybrid work options continue to take hold and lease revenues continue to decrease, office values could be cut by nearly $500 billion in the next decade.
Key insight: Significant decreases in valuations will negatively affect local public finances and the stability of the financial sector.

What does this change: As office and retail property taxes decrease, cities will have fiscal holes in their budgets. Governments would need to supplement this by raising tax rates or decreasing their spending – both of which can affect the attractiveness of that city as a place to live and work.