How DOGE Could Power US Growth
As the US renews efforts for greater efficiency, Argentina reminds us how much is at stake.
How DOGE Could Power US Growth
Efe Murat/Shutterstock
What’s the Impact of Hybrid Work on Commercial Real Estate?
- By
- February 10, 2025
- CBR - Remote Work
The COVID-19 pandemic ushered in a new era of remote-work policies—and led to a drastic downturn in the demand for office space in the United States. Research by New York University’s Arpit Gupta, University of North Carolina’s Vrinda Mittal, and Columbia’s Stijn Van Nieuwerburgh finds that office occupancy in major US office markets tumbled by 90 percent from the end of February 2020 to the next month, as buildings emptied out. Occupancy rates recovered by the end of 2023, but were still at about half of their pre-pandemic levels.
Today, the uncertainty around working from home continues to depress office occupancy, lease revenue, and lease renewal rates in commercial real estate. But hybrid work creates some reason for hope. The researchers find that office-space demand from 2019 to 2023 fell by about 41 percent for companies whose workers were expected to be in the office only one day per week—but by just 9 percent for those with staff onsite two to three days. And it grew by 1 percent for companies that expected to see employees four or five days per week.
Informed by data from real estate investment trust returns, the researchers find that the value of New York office space fell by nearly half between December 2019 and December 2020. Projecting 11 years ahead, they considered two scenarios: Office occupancy over the next decade stabilizes in 2026, or the office market experiences further occupancy declines due to increased WFH. In the first scenario, the researchers project, average office value in New York will be about 47 percent below 2019 values by 2030. In the second, those same office values will be about 67 percent below pre-pandemic values.
Ditching the unused desks
Companies that anticipated their employees would report to the office just one day per week or less saw their demand for office space drop sharply from pre-pandemic levels.
If hybrid work becomes the norm, their model implies that an additional day per week worked in the office reduces the decline in office values by 7 percent.
New York experienced the US’s largest dollar decline in office value during the pandemic, at $90 billion from December 2019 to December 2023, while the collapse in values was the sharpest in percentage terms in San Francisco. Across all offices in the US, Gupta, Mittal, and Van Nieuwerburgh find, office values decreased by $557 billion during that same time period.
Using data platform CompStak, the researchers also find that the total value of annualized revenue for in-force office leases in the US declined by 15 percent from 2019 to 2023, from about $91 billion to $77 billion. The volume of newly signed leases fell from about 414 million sq. ft. per year in the second half of 2019 to about 150 million sq. ft. in the second half of 2023. Net effective rents declined for both existing leases, which were mostly signed before 2020 but whose rent increases didn’t keep up with inflation, and newly signed leases.
A “flight to quality” helped newer office buildings with more amenities fare better, as their rents declined less than lower-quality buildings, or even increased. “This is consistent with the notion that firms need to improve office quality to induce workers to return to the office,” the researchers write.
The overall decline in office values has serious implications in urban areas, they note, given that taxes from commercial real estate represent about 10 percent of overall tax revenue for the average city. Declining tax revenue could mean a city would either need to raise other tax rates or cut government spending on services, making it a less attractive place to live and leading to population loss. The researchers suggest that one solution for vacancies is converting empty office spaces into multifamily apartment homes. Programs such as New York’s Office Conversion Accelerator program, announced in 2023, are already working toward this. In fact, many of the largest central business districts in the US now have subsidies in place to stimulate office conversions.
Arpit Gupta, Vrinda Mittal, and Stijn Van Nieuwerburgh, “Work from Home and the Office Real Estate Apocalypse,” Working paper, October 2024.
More from Chicago Booth Review
US Banks’ Big Interest Rate Gamble
Over a decade after the 2008–09 financial crisis, institutions were still privatizing gains and socializing losses.
US Banks’ Big Interest Rate Gamble
Which Workers Will Benefit from AI?
Earlier job transformations prompted by the onset of manufacturing and IT may hold clues for how fast the labor market will adapt to the latest technology revolution.
Which Workers Will Benefit from AI?More from Chicago Booth
Steve Kaplan Elected to AFA Society of Fellows
The prestigious award from the American Finance Association recognizes top academics whose research has made a lasting impact on the finance field.
Example Article Swiss
Where Product Management Meets AI
At the Kilts Center’s annual Case Competition, a student team leveraged LLMs to create innovative product solutions for Microsoft.
Example Article Swiss
In Memoriam: John P. ‘Jack’ Gould
The Booth dean and professor (1939–2024) was an expert in microeconomics, strategy, and industrial organization and served in the US government.
Example Article SwissResults 1-3 of 372
Your Privacy
We want to demonstrate our commitment to your privacy. Please review Chicago Booth's privacy notice, which provides information explaining how and why we collect particular information when you visit our website.