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NYC commercial real estate won’t recover from WFH for 10 years

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US office buildings may take longer to recover than other economies as workers continue to work from home even after the pandemic subsides.

In New York City, for example, it could take 10 years for real estate to recover its 2019 value, according to a study released Monday (October 3) by the National Bureau of Economic Research.

Researchers at New York University and Columbia University have developed a pricing model that pulls together a variety of data, including remote job listings. Applied to the United States as a whole, their findings suggest that US office real estate could lose 39% of its value over the long term, wiping out $453 billion.

Their analysis shows an already bleak picture. Office building occupancy rose from 95% in February 2020 to 10% in the following month. By mid-September, it was still below 50%.

The study also looked at how much leasing income declined over roughly the same period. Decreased by about 18% from January 2020 to May 2022. In fact, in the past six months, the amount of newly leased office space has fallen from 253 million square feet per year pre-pandemic to 59 million square feet.

The extent to which office real estate will decline in the next few years will depend on the battle between employers and employees over the future of flexible working. If New York City employers push for a return to office, office building valuations in 2029 will be about 39% below their 2019 levels, according to the study. However, if the New Yorker continues to work from home at his current rate, his valuation will remain nearly 60% below her 2019 level even after 10 years.

“The best guess for balancing these two factors is a significant decline in value, but there is considerable uncertainty in the estimates,” said NYU finance professor and one of the study’s co-authors. As one Arpit Gupta said:

Buildings most affected by working from home

Researchers found that newer buildings with more amenities had higher occupancy rates than older buildings. Commercial tenants were more likely to demand more space and pay higher rents in these types of ‘A+ buildings’.

“The A+ results surprised us,” says Gupta. “This was not what we expected, given that spaces with high amenities actually seem to hold up better compared to the lower quality office he spaces.”

The findings suggest that companies need to rearrange their office space if they want to keep workers back, the researchers wrote.

How can local and state governments avoid financial bankruptcy?

Local governments rely on property taxes. Single-handedly destabilizing the commercial real estate sector could set off a “financial ruin loop,” researchers warn.

One idea to combat a prolonged recession is for governments to relax the zoning and permits required to convert commercial properties into multifamily housing.

“This kind of conversion is very attractive because it addresses both the problem of devalued demand for commercial office and the pressure for affordable rents in these cities.” Gupta said.rent and house prices went up Work from home trend.

However, office buildings cannot easily be converted into apartments. For this reason, the researchers also recommend that the government subsidize the conversion with public funds.

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