Remote-work study's 'urban doom loop' forecast largely realized as office defaults mount
A 2022 paper co-authored by Columbia Business School's Stijn Van Nieuwerburgh predicted a cycle of falling office values, reduced tax revenues, and declining downtown appeal. Four years later, the authors report that office mortgage defaults are occurring daily, matching their earlier warnings. The study, now published in the American Economic Review, used lease data from over 100 U.S. markets to show a 15% drop in annual lease revenue from 2019 to 2023.
The study's methodology combined lease-level data from over 100 U.S. office markets with an asset-pricing model to project long-term value erosion. Between 2019 and 2023, annual lease revenue fell more than 15% nationwide, with the model estimating New York City's office stock would ultimately lose roughly 47% of its value and nationwide losses approaching $557 billion. The authors argued that long lease terms would delay the full impact.
Four years on, the predicted slow-moving crisis has materialized as maturing mortgages meet weak leasing demand and higher interest rates, producing daily defaults and foreclosures. The market has bifurcated: trophy buildings still command premium rents, while older properties face vacancies and deferred maintenance. Some obsolete offices are being demolished, converted to housing, or repositioned for smaller tenants, reflecting ongoing urban adaptation.
The findings could affect municipal budgets, public services, and downtown economies in cities heavily dependent on commercial property taxes. Workers, residents, and local businesses may all feel ripple effects if reduced tax revenues lead to service cuts or higher taxes. However, the authors note cities have historically reinvented themselves, and conversions to housing or other uses could soften the transition, suggesting the outcome depends on how policymakers and markets respond.