Downtown office buildings around the country are selling for much lower prices than before the pandemic, prompting questions about the future of central business districts.
The sharp rise in office vacancies — and attendant drops in value for office buildings — could be worse than it appears, according to Professor Stijn Van Nieuwerburgh, who spoke with Governing’s Alan Greenblatt about the issue.
According to Van Nieuwerburgh, this is because “vacancy rates aren’t showing the whole picture, since there are still lots of leased offices that aren’t occupied or are under-occupied” as tenants wait out long-term leases, Greenblatt explains. Meanwhile, lower building values and higher mortgage rates mean that for many owners, it’s more profitable to walk away.
Van Nieuwerburgh warns that this slow-moving crisis will lead to a reduction in property taxes for cities. “In my view, we have permanently lower demand for office stock that is built on valuable land, so something else is the highest and best use for that land. The only option is to repurpose those buildings or that land.” However, Van Nieuwerburgh estimates that only 15 percent of office buildings are appropriate for residential conversion.
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