Impact Property Valuations

Low US Office Occupancy To Impact Property Valuations

USA – The low occupancy rate of office buildings across the country would significantly impact the valuations of office properties, according to a report published by public policy magazine City Journal on Wednesday morning (17 August, SGT).

According to data from security firm Kastle, office occupancy in the New York metro area is at 40 percent of what was seen prior to the COVID-19 pandemic. Merely 8 percent of office staff in Manhattan report to their office 5 days per week, while slightly more than 1 out of 4 (28 percent) work remotely full-time, while a larger percentage of employees have adopted a hybrid work arrangement.

This pattern is similar to what’s being witnessed across the United States, where nearly a third or 30 percent of paid work days are done remotely, based on estimates from telecommuting expert Nick Bloom. The figure includes in-person jobs that can’t be done remotely. For jobs that can be performed remotely, only around half of the work hours are spent in the office.

The weak office occupancy rate is expected to hit the office rental revenue of landlords. In turn, this would adversely affect the valuations of commercial properties, particularly office buildings, said Arpit Gupta, an adjunct fellow at the Manhattan Institute.

“In research I have done with Stijn Van Nieuwerburgh and Vrinda Mittal, we document these shifts in leasing revenue and try to project the impacts on office real-estate valuations.”

“We estimate that valuations in New York have dropped by as much as 28 percent. If extrapolated to the rest of the country, that would translate to a total value loss of US$500 billion — and a catastrophic fall in the value of the central business district (CBD), the core anchor holding together urban areas.”

Nevertheless, Gupta’s research showed that there is a flight to quality trend, with office buildings featuring top facilities and amenities seeing greater demand. In comparison, lower-quality office spaces, namely Grade B and Grade C, are witnessing much weaker demand.

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