More than 2 ½ years since the pandemic made working from home more common, a study has found employees being in the office only some or no days comes at a heavy cost to the value of U.S. office property that could linger for years.

Based on the assumption that some form of work from home is likely here to stay, the loss of value in the U.S. commercial offices may total about $522 billion by 2029 from its pre-pandemic level in 2019, according to a study published Thursday by business school professors at Columbia University and New York University. New York, the largest U.S. commercial market, alone will lose in value nearly $56 billion, more than one-tenth of the U.S. total, according to the 82-page study, titled “Work From Home and the Office Real Estate Apocalypse.”

Remote work “changes the risk premium on office real estate,” the study said. “The pandemic has had large effects on both current and expected future cash flows for office buildings. These valuation changes have repercussions for local public finances and financial sector stability. … There’s substantial uncertainty about future office values.”

Columbia professor Stijn Van Nieuwerburgh, one of the authors of the study, told CoStar News in an email the headline numbers could be revised because limited market data requires them to “scale up” to “obtain a market-wide number for value destruction.”

At the start of the pandemic, when the physical office use rate at one point plunged to 10% in March 2020 from 95% in February 2020, the study found the value of U.S. office property fell at an even faster rate, at 45%, according to the report, citing security firm Kastle System’s keycard access swipe data.

The office use rate has since recovered to 47.5% in a 10-city average, according to Kastle’s latest data. New York still has more than half of its office space for workers unused, with only 47.2% reported as of Nov. 9. And it comes as real estate brokerage CBRE found indications of less demand for some office space in cities than in suburbs.

As remote working has led some companies to exit their leases or reduce space, office lease revenue dropped 17 percentage points between December 2019 and May with two-thirds of that coming from space declines, according to the study, adding rent decreases made up the rest. The study also found there’s a correlation between companies with more work-from-home days and cutbacks to their office space.

To be clear, there's no guarantee office property would remain solely in that use for the next seven years of any steady drop in values, and that remote and hybrid working policies of companies will stay in place.

Even so, the total footprint of newly signed leases in the study’s database fell from 253.43 million square feet per year just before the pandemic to 59.32 million square feet in May, with rents falling 13.16% between December 2019 and December 2021 before reversing to pre-pandemic levels by the end of 2021, according to the report.

“Rents may not have bottomed out yet,” the study said, adding nearly 62% of U.S. leases and almost 72% of office leases in New York didn’t come up for renewal in 2020 and 2021. That’s not to mention U.S. office vacancy rates are at 30-year highs in several major markets, including 21.5% in New York in the second quarter, according to the study.

In an encouraging sign, the study also found the so-called flight-to-quality trend of corporate tenants seeking well-located properties with appealing amenities, especially as companies want to entice workers back, is real.

“Higher-quality buildings, those that are built more recently and have more amenities (informally called Class A+), appear to be faring better in the pandemic,” according to the study. “Their rents on newly signed leases do not fall as much or even go up, in contrast with the rest of the office stock. … Lower-quality office appears to be a more substantially stranded asset, given lower demand, raising questions about whether these assets will ultimately need to be repurposed.”

While the average office asking rent in the United States was “largely unchanged” at $35.23 per square foot in the third quarter, effective rents for top-tier properties in some of the largest markets have risen by 4.2% year-to-date through third quarter, according to a report from the real estate services firm CBRE.

In another sign of the negative effect of remote working, CBRE found that vacancy rose at a faster pace in downtown areas versus the suburbs, adding the 17.4% U.S. downtown vacancy rate marked the second straight quarter that it topped the suburbs, which totaled 16.9% last quarter.

Amid worries about higher interest rates and a potential recession, third-quarter leasing has fallen for the third straight quarter, according to CBRE. Major corporate tenants including Facebook parent Meta and Amazon have announced job cuts with plans to reduce or pause real estate expansions.

During the widespread emergence of remote work, real estate investment trusts including New York’s SL Green Realty, Manhattan’s largest office landlord, and Vornado Realty Trust have witnessed their values slide. Vornado’s chief executive, Steven Roth, recently said its stock is “stupid cheap.”

With workers not back to the office, retail and other businesses that cater to them also have been hit hard despite some signs of improvement in markets such as New York.

All that will have “important implications for local public finances,” the Columbia and NYU study found. For instance, it noted the share of real estate taxes in New York’s budget was 53% in 2020, 24% of which came from office and retail property taxes.

“The fiscal hole left by declining [central business district] office and retail tax revenues would need to be plugged by raising tax rates or cutting government spending,” the study said. “Both would affect the attractiveness of the city as a place of residence and work. These dynamics risk activating a fiscal doom loop.”

Meanwhile, with office properties often financed with debt, which sits on banks’ balance sheets and in portfolios of debt on the commercial mortgage-backed securities market, large declines in value would have consequences for institutional investors and for financial stability, according to the study.