Work from Home and the Office Real Estate Apocalypse

77 Pages Posted: 7 Oct 2022 Last revised: 29 May 2023

See all articles by Arpit Gupta

Arpit Gupta

NYU Stern School of Business

Vrinda Mittal

University of North Carolina (UNC) at Chapel Hill - Kenan-Flagler Business School

Stijn Van Nieuwerburgh

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

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Date Written: September 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.

Suggested Citation

Gupta, Arpit and Mittal, Vrinda and Van Nieuwerburgh, Stijn, Work from Home and the Office Real Estate Apocalypse (September 2022). NBER Working Paper No. w30526, Available at SSRN: https://ssrn.com/abstract=4238253

Arpit Gupta (Contact Author)

NYU Stern School of Business ( email )

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New York, NY
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HOME PAGE: http://arpitgupta.info

Vrinda Mittal

University of North Carolina (UNC) at Chapel Hill - Kenan-Flagler Business School ( email )

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Chapel Hill, NC 27599-3490
United States

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

Stijn Van Nieuwerburgh

Columbia University Graduate School of Business ( email )

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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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Centre for Economic Policy Research (CEPR)

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ABFER ( email )

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