The pandemic-driven shift to remote and hybrid work has left office skyscrapers half-empty in downtown Los Angeles and other cities in California and the U.S.
The pandemic-driven shift to remote and hybrid work has decreased demand for office space and will steadily lower its value. That has huge implications not just for building owners but also for cities that rely on property tax revenue and the economic vibrancy that office workers generate.zombies
A vicious circle is emerging: Lower office building use leads to less spending at surrounding businesses and, as leases turn over, less rent revenue. This leaves less money available for building improvements, which further decreases property values and resources for maintenance and upgrades.
Establish a baseline: Cities should assess office buildings for their likelihood of low occupancy and default and estimate the resulting budget shortfalls from lower tax revenue. Replace lost revenue: City leaders can delay property reappraisals; make better use of public spaces for art, music and theater programming to draw people downtown to spend time and money; and find new sources of revenue such as tourism and arts and culture districts.
Making these decisions will be difficult but necessary. The pandemic created a permanent change in workplace behavior, so even a national economic rebound or a pause in interest rate hikes will not solve the problem for many buildings. Our analysis suggests that a third or more of current U.S. office space won’t be needed.
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