Work From Home and the Office Real Estate Apocalypse

Abstract

We show remote work led to large drops in lease revenues, occupancy, lease renewal rates, and market rents in the commercial office sector. We revalue New York City office buildings taking into account both the cash flow and discount rate implications of these shocks, and find a 42% decline in long run value. For the U.S., we find a $475 billion value destruction. Higher quality buildings were buffered against these trends due to a flight to quality, while lower quality office is at risk of becoming a stranded asset. These valuation changes have repercussions for local public finances and financial stability.

Keywords: remote work, office valuation, commercial real estate, urban doom loop

JEL Classification: R3, R4, G12, R51