An estimated $453 billion in value has been wiped from offices in New York City due, in part, to the rise of remote work, a new study has found.
The hit was discovered during a study by the National Bureau of Economic Research (NBER) which was conducted by researchers at New York University and Columbia University.
According to the study, the value of offices in New York City declined by around 45 percent in 2020.
The 2020 decline came after the COVID-19 pandemic led to “drastic changes in where people work,” researchers noted.
In the long term, the values of the properties are set to decline 39 percent below pre-pandemic levels due to the rise of remote work, according to the study, representing a $453 billion value destruction.
“The total decline in commercial office valuation might be, as a consequence, around $518.71 billion in the short run and $453.64 billion in the long run,” the study noted.
The study, which has not yet been peer-reviewed, utilized lease-level data from CompStak, a real estate data platform, and financial reports from real-estate investment trusts.
It focused on New York City but included data from 105 office markets throughout the United States over the period from 2000 until May 2022.
“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,” the study notes.
“These valuation changes have repercussions for local public finances and financial sector stability.”
Higher-quality office buildings typically refer to buildings that have been recently built or renovated and come complete with high-quality on-site amenities.
They are commonly described as “Class A+.”
At the end of February 2020, 95 percent of office space was occupied in the United States; but by the end of March 2020, occupancy dropped to 10 percent, the authors said, adding that occupancy levels have remained “depressed ever since.”
As of mid-September, the average office occupancy rate was 47 percent, according to the study, which also noted that the impact of remote work on the value of offices could have important implications for local public finances.
“For example, the share of real estate taxes in New York City’s budget was 53 percent in 2020, 24 percent of which comes from office and retail property taxes,” they wrote.
“Given budget balance requirements, the fiscal hole left by declining CBD [central business district] office and retail tax revenues would need to be plugged by raising tax rates or cutting government spending.”
The latest study findings come as a string of firms throughout the United States have opted to keep in place work-from-home protocols that were initiated during the COVID-19 pandemic and subsequent lockdowns, due in part to the financial benefits related to allowing employees to work remotely.
However, many companies, including Elon Musk’s Tesla, have told workers that they need to return to the office or risk losing their job.
In August, a group of Apple employees launched a petition requesting more flexibility around working arrangements after the company told workers they would need to return to the office for three days a week starting the week of September 5.