In the next few years, office valuations in New York City are expected to fall as much as 39%, signaling the potential end for the traditional office.
A research report from New York University’s Stern School of Business, written with Columbia University’s Business School, found that physical occupancy (the amount of people working from an office daily) has fallen 47% since February 2020. While this is nowhere near as jarring as at the beginning of the pandemic, the report predicts that by 2029, valuations of office spaces will be down 39% due to remote and hybrid work trends staying strong.
Lower-quality office buildings that were less expensive to build will experience the largest downturn in valuation. More expensive office buildings, especially those that are staples of New York culture, such as the Empire State Building, are less likely to experience a downturn.
Construction Dive reports that this collapse in office valuations will eventually impact NYC’s business and retail properties as well. This is because reduced office and retail spaces will decrease the amount of taxes collected, thus resulting in smaller city budgets and negatively impacting the city's cleanliness, efficiency, and inner workings. According to the report, real estate taxes accounted for 53% of NYC’s budget, with 24% of that coming from office and retail property taxes.
The report adds that new construction opportunities could emerge despite office spaces becoming less popular. While class-C or class-B office building projects will be fewer and further between, class-A structures or conversions from office spaces into multifamily homes might become trendy.
The report concludes with a plea to local governments to help fund research and implement policies that can fill the city’s need for adequate funds. They suggest that conversion projects are the way to go about this change and that older office buildings are actually very agreeable to these types of conversions.