Mortgage News - What Is Causing The Decline Of The Office Market?

What Is Causing The Decline Of The Office Market?

Mortgage News July 3, 2023

Researchers have issued a warning about the significant negative impact of remote work on the value of office spaces in New York. It is projected that by 2029, these office properties will experience a decrease of over 40% in value compared to their pre-pandemic levels.

A recent report by teams from New York University and Columbia University indicates that the situation is even worse than previously estimated, as the return to office work has stagnated at approximately 50% occupancy. Titled “Work From Home and the Office Real Estate Apocalypse,” the study conducted by Arpit Gupta from NYU and Vrinda Mittal and Stijn Van Nieuwerburgh from Columbia University predicts that the city’s office market will witness a decline in value amounting to $49 billion, equivalent to a 28% decrease by 2029.

Moe Ashor, a mortgage broker at Edge Home Finance Corp., recognizes the challenges faced by the commercial real estate sector. While retail space is holding up to some extent, office spaces are suffering. Ashor appreciates the Federal Reserve’s decision to pause interest rate hikes, but acknowledges the ongoing uncertainty. Researchers from New York University and Columbia University also emphasize the lasting effects of the pandemic on the market.

Researchers from New York University and Columbia University have observed that the market continues to bear the effects of the pandemic. During this time, remote work practices have become more prevalent, with many companies implementing permanent remote or hybrid work setups and reducing their physical office spaces. This shift towards remote work has led to a spatial concentration of office assets in urban central business districts, presenting fiscal challenges for local governments that heavily rely on property taxes from commercial real estate to fund public services, the researchers explained.

Given the circumstances, the question arises: Has Ashor shifted his focus to the single-family home market? With the market presenting challenges in both segments, Ashor is currently directing his attention to both areas. In previous times of prosperity in both the commercial and residential markets, Ashor had a preference for the commercial sector. This preference was driven by the relatively smoother process of obtaining commercial loans compared to residential loans.

However, with both markets currently facing difficulties, Ashor finds himself in unfamiliar territory and is taking a cautious approach. In light of the significant challenges faced by both segments, Ashor has adopted an approach of allocating equal attention to both.

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What Is Causing The Decline Of The Office Market?

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