The Covid pandemic had a stark impact on the commercial real estate market as lockdowns forced people to work from home in their millions. This led to many business districts resembling ghost towns and prompted many to ponder whether remote working would permanently take the shine off of cities that had previously been the driving forces of our economies.

Of course, much of this concern veered into speculation that assumed that the conditions seen during the pandemic would endure indefinitely. Research from the NYU Stern School of Business explores the impact of remote work on the commercial office sector in New York to try and understand the true scale of the impact over a period of time.

Meaningful change

Obviously, the death of the commute has been oft-prophesized, with Peter Drucker famously suggesting that we would no longer need to go into a physical office all the way back in 1989. The huge shift seen as a result of Covid-19 may have been enough to drive more meaningful change, however.

The researchers discovered a significant shift in both current and expected future cash flows for office buildings as a result of the pandemic. What’s more, the rise of remote working has also changed the risk premium on office real estate.

“We estimate a 32.95% decline in the value of New York City’s office stock at the outset of the pandemic,” the authors explain. “We estimate that remote work is likely to persist and result in long-run office valuations that are about 28% below pre-pandemic levels.”

In total, this represents destruction in value of around $500 billion. While higher quality office buildings were buffered from this general trend somewhat, lower quality office buildings were especially harshly impacted.

“Our results have important implications for future work practices, conversion of some office and urban design, and public finances,” the authors conclude. “Firms and employees have invested considerably to advance remote work possibilities.”