New York Office Bldgs May Lose US$50bil In Value

USA – Office buildings in New York could potentially lose about US$50 billion in their value as many employees continue to work from home (WFH), reported Bloomberg on Monday evening (3 October, SGT).

Based on a new study by the National Bureau of Economic Research, the value of these commercial properties has plunged by almost 45 percent in 2020. Their value is also expected to remain at 39 percent below pre-COVID levels due to the prevalence of remote work.

Aside from that, card-swipe data from security firm Kastle Systems showed that only around 46 percent of employees in the New York metro area have returned to their office full time as of the week ended 21 September 2022.

Still, the study, which was conducted by researchers from New York University and Columbia University discovered that higher-quality office towers are still seeing healthy demand, as more tenants look for better quality office space.

“Lower quality office buildings see much more dramatic swings” in valuations, said the researchers. Overall, “these valuation changes have repercussions for local public finances and financial-sector stability.”

This problem is evident in New York at Third Avenue between 42nd and 59th Streets, where the office buildings were constructed between the 1950s and 1980s. In addition, most haven’t undergone significant upgrades.

In fact, office buildings in this strip have an average vacancy of 29 percent, surpassing New York’s overall vacancy rate of 19 percent. In particular, 825 Third Avenue is currently 92.5 percent vacant, while 655 Third Avenue is 47.5 percent unoccupied.

Savills Vice Chairman Nick Farmakis deems these office buildings as “leave-behind space” and said there’s no easy fix for them.

Furthermore, data from real estate consultancy Savills indicated that office vacancy in New York rose to a higher rate than comparable office buildings in London, Toronto, Frankfurt, Tokyo, and Hong Kong.