Faculty Research: Work From Home and the Office Real Estate Apocalypse

The Covid-19 pandemic led to drastic changes in where people work. Physical office occupancy in the major office markets of the U.S. fell from 95% at the end of February 2020 to 10% at the end of March 2020, and has remained depressed ever since, only gradually creeping back to 50% by May 2022. In the intervening period, companies have learned how to effectively work from home. Many corporate leaders have announced permanent remote or hybrid work arrangements, and several have begun to shrink their physical footprint. These shifts in projected office demand have led to concerns that commercial office buildings may become a stranded asset in the wake of the technological disruptions resulting from remote work

In a new working paper, Work From Home and the Office Real Estate Apocalypse, Stijn Van Nieuwerburgh, Earle W. Kazis and Benjamin Schore Professor of Real Estate at Columbia Business School, and co-authors Vrinda Mittal, Ph.D. Candidate in Finance and Economics, Columbia Business School and Arpit Gupta '16 Ph.D, Assistant Professor of Finance, New York University, ask what all of the changes in current and expected future remote work arrangements imply for the value of office buildings.

By combining new data with a new asset pricing model, they find a baseline 28% reduction in the value of NYC office. Extrapolated to the U.S., this amounts to a $500 billion loss. These results have important implications for future work practices, conversion of some office, urban design, and public finances.