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The Coronavirus and Commercial Real Estate: Is Office Space in Central Locations Obsolete?

Out of the blue, millions of Americans have been forced to work from home, and hundreds of thousands of employers have been forced to allow them to do so.   Somehow most have managed to pull it off, with a limited decrease in short term productivity, one of the few triumphs of American ingenuity of the coronavirus crisis.  Perhaps this moment for the internet is like the triumph of electricity, which had a limited impact on productivity, economic growth and American life for the first few decades after new applications for it were invented, and then suddenly transformed everything.


History suggests that there were also long lags before both steam power and electricity boosted productivity. Work by Paul David, an economist at Oxford University, shows that productivity growth did not accelerate until 40 years after the introduction of electric power in the early 1880s. This was partly because it took until 1920 for at least half of American industrial machinery to be powered by electricity. But firms also needed time to figure out how to reorganise their factories around electric power to reap the efficiency gains.

So what does this mean for office towers in central locations, built to allow large numbers of workers to interact in person, both within firms and between them?  That is the question that is being asked in media, academia, finance and the real estate industry.  And the answer seems to be 70 to 75 percent, but in different directions.

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