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Work from home and the office real estate apocalypse

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Re: Work from home and the office real estate apocalypse

#51

Post by benjaminwootton »

wmeredith wrote: post #2

From the abstract, “We revalue the stock of New York City commercial office buildings taking into account pandemic-induced cash flow and discount rate effects. We find a 32% decline in office values in 2020 and 28% in the longer-run, the latter representing a $500 billion value destruction.” Is that value “destroyed”? Is it not unlocked to flow elsewhere? I’m genuinely curious about the dynamics of this.

So far, I suspect every dollar lost on commercial real estate has been gained on residential.

In many cases, the uplift in residential value is directly attributable to WFH (e.g. where a home office or more rural property becomes more desirable.)

Re: Work from home and the office real estate apocalypse

#53

Post by sbrother »

wmeredith wrote: post #2

From the abstract, “We revalue the stock of New York City commercial office buildings taking into account pandemic-induced cash flow and discount rate effects. We find a 32% decline in office values in 2020 and 28% in the longer-run, the latter representing a $500 billion value destruction.” Is that value “destroyed”? Is it not unlocked to flow elsewhere? I’m genuinely curious about the dynamics of this.

Living in a resort town in Utah, I’m fairly sure a large portion of that value was transferred to Mountain West residential real estate

Re: Work from home and the office real estate apocalypse

#54

Post by lostcolony »

_vdpp wrote: post #46
dhzhzjsbevs wrote: post #42

Earlier quoted context omitted.

That's not how market devaluation works. The "money" (paper money value) definitely was disappeared. It doesn't flow to someone else. Markets don't work like that. If I buy something for $100, the market value increases to $150 and then drops to $50, I've still lost $100 from the peak on paper. It didn't go to someone else.

The folks holding those assets didn’t have the money either though, until it was time to sell and they sold.

And the people buying 'gained' the difference, by not having to pay it out to gain the asset.

Re: Work from home and the office real estate apocalypse

#55

Post by lolinder »

IAmGraydon wrote: post #23

I’m a believer in reversion to the mean, and I think that’s what we will see with the office market and work from home. The technology to work from home existed before the pandemic. Why didn’t it take off before the pandemic if it works so well? We didn’t suddenly discover a new technology here. The use of that technology was precipitated by a transient force, and when that force is removed completely, things will re…

> Why didn’t it take off before the pandemic if it works so well? We didn’t suddenly discover a new technology here. The use of that technology was precipitated by a transient force, and when that force is removed completely, things will return to the previous equilibrium.

Not necessarily. It's entirely possible that working from home has always been better but that there was enough friction preventing a move in that direction that it didn't happen until covid forced it to. If that's the case, then we don't expect a reversion because the friction preventing the initial adoption is gone.

Re: Work from home and the office real estate apocalypse

#57

Post by _delirium »

tamrix wrote: post #35
JohnJamesRambo wrote: post #4

Earlier quoted context omitted.

Sweet ass apartments in office buildings I hope.

Not a chance. This is completely unrealistic without major, major reconstruction. It's cheaper to deconstruct and build a new building in its place. Imagine the amount of plumbing you would have to redo for the toilets. There all sorts of codes for apartments, there must be so many windows, you need natural light in bedrooms etc

I doubt that practical considerations relating to renovating a building's plumbing are very relevant. NYC is known for an aggressive zoning policy against commercial-to-residential conversations, which they overtly defend as policy (to keep NYC attractive for business headquarters). If it were infeasible to undertake commercial-to-residential conversions for practical/construction reasons, the city wouldn't need to go out of its way to ban them.

Re: Work from home and the office real estate apocalypse

#58

Post by dkokelley »

superfrank wrote: post #22
cortesoft wrote: post #11

Earlier quoted context omitted.

Will people still want to live in cities as much if you can work from home?

Of course they will. There's more reasons to live in a city than just "it's close to work". Also, there are plenty of people who work in the city who cannot work from home because their jobs require them to physically be present.

Some of the physically present jobs are supporting roles to people who now don't have to be in the city. Example: a restaurant worker has to be physically present to serve customers, but the customers were all former office workers.

Agree that cities offer more than just a place for business to happen.

Re: Work from home and the office real estate apocalypse

#59

Post by Gigachad »

raldi wrote: post #18
cortesoft wrote: post #8

Earlier quoted context omitted.

Whether value was 'destroyed' or not depends on how you look at it. $500 billion dollars worth of assets were lost by the owners of the real estate; that value is gone, and it didn't go to someone else. It just vanished. The value didn't disappear because it transferred to someone else, it went away because the asset itself become less desirable and valuable to other people. You can imagine it being like if a farmer…

But it wasn't destroyed; it was transferred: WFH-comfortable residential properties went up in value.

Did they? Can we see that the entire value of these properties moved? Sounds like an impossible thing to measure. Considering most people already had space to work from home so they didn't move value anywhere. There is also the problem where the property which is most profitable for local governments has been the hardest hit. When you look at the maps that have been produced on this you can see some serious issues coming up where the profit centers of cities are all at risk while the ROI negative areas are expanding.

https://www.urbanthree.com/case-study/minneapolis-mn/

https://www.youtube.com/watch?v=7Nw6qyyrTeI https://www.urbanthree.com/case-study/minneapolis-mn/

Re: Work from home and the office real estate apocalypse

#60

Post by dkokelley »

I'd love to see office spaces transformed into other useful spaces: Parks, cultural centers, entertainment, residential space, etc. Some office space could still be used as a coworking space for people who don't want to work from home.

The land didn't disappear. Only the need for a specific use has changed.

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