Work From Home and the Office Real Estate Apocalypse

76 Pages Posted: 9 Jun 2022 Last revised: 26 Sep 2022

See all articles by Arpit Gupta

Arpit Gupta

NYU Stern School of Business

Vrinda Mittal

Columbia Business School, Columbia University in the City of New York

Stijn Van Nieuwerburgh

Columbia University Graduate School of Business; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR); ABFER

Date Written: September 26, 2022

Abstract

We study the impact of remote work on the commercial office sector. We document large
shifts in lease revenues, office occupancy, lease renewal rates, lease durations, and market rents
as firms shifted to remote work in the wake of the Covid-19 pandemic. 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. We revalue the stock of New York City
commercial office buildings taking into account pandemic-induced cash flow and discount rate effects. We find a 45% decline in office values in 2020 and 39% in the longer-run, the latter representing a $453 billion value destruction. Higher quality office buildings were somewhat buffered against these trends due to a flight to quality, while lower quality office buildings see much more dramatic swings. These valuation changes have repercussions for local public finances and financial sector stability.

Keywords: remote work, covid-19, office valuation, commercial real estate

JEL Classification: R3, R4, G12

Suggested Citation

Gupta, Arpit and Mittal, Vrinda and Van Nieuwerburgh, Stijn, Work From Home and the Office Real Estate Apocalypse (September 26, 2022). Available at SSRN: https://ssrn.com/abstract=4124698 or http://dx.doi.org/10.2139/ssrn.4124698

Arpit Gupta

NYU Stern School of Business ( email )

Suite 9-160
New York, NY
United States

HOME PAGE: http://arpitgupta.info

Vrinda Mittal

Columbia Business School, Columbia University in the City of New York ( email )

3022 Broadway
New York, NY 10027
United States
10027 (Fax)

HOME PAGE: http://www.vrindamittal.com

Stijn Van Nieuwerburgh (Contact Author)

Columbia University Graduate School of Business ( email )

3022 Broadway
Uris Hall 809
New York, NY New York 10027
United States

HOME PAGE: http://https://www0.gsb.columbia.edu/faculty/svannieuwerburgh/

National Bureau of Economic Research (NBER)

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Cambridge, MA 02138
United States

Centre for Economic Policy Research (CEPR)

London
United Kingdom

ABFER ( email )

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Singapore, 117592
Singapore

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