Kael Goodman Interview: Arpit Gupta, Co-author ‘Work From Home and the Office Real Estate Apocalypse’

Kael Goodman, the CEO of Marketproof, interviews NYU Professor Arpit about “Work From Home and the Office Real Estate Apocalypse”

KEY TAKEAWAYS

The shift to remote and hybrid work has reduced office values by as much as 28% in New York City, a market that accounts for nearly 30% of the country’s office stock

Office value destruction affects co-located businesses, retail and tax-funded organizations, revealing the economic vulnerability of central business districts

The lost value has transferred to residential, with remote and hybrid work fueling demand for larger homes and a shift to the suburbs that is widening the affordability gap in cities

The office apocalypse could spark an urban planning revolution to create more dynamic city centers and better affordable housing options created from less desirable office stock

ABOUT THE STUDY

Gupta is an NYU professor who co-authored one of the year’s more important real estate studies: “Work from Home and the Office Real Estate Apocalypse,” released June 15, 2022. The study examines large shifts in lease revenues, office occupancy, lease renewal rates, lease durations, and market rents as firms shifted to remote work in the wake of the Covid-19 pandemic.

The pandemic has had large effects on both current and expected future cash flows for office buildings as well as risk premium and overall valuation. The authors revalued New York City commercial office buildings taking into account pandemic-induced cash flow and discount rate effects and found a 32% decline in office values in 2020 and 28% in the longer-run, the latter representing a $500 billion value destruction.

Higher quality office buildings were somewhat buffered against these trends due to a flight to quality, while lower quality office buildings are seeing much more dramatic swings. These valuation changes have repercussions for local public finances and financial sector stability. Goodman and Gupta discuss the report, which has broader implications for the real estate ecosystem in Manhattan.

The paper discussed in this interview can be found here: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4124698