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Why the CRE Urban Doom Loop May Still Be Coming

Odd Lots

NOTE

Exploring Urban Price Discrepancies and Return to Office Trends

There is a complex interplay between urban price discrepancies and return to office trends. Although there is no clear nationwide trend on office return, some of the largest companies like Goldman Sachs are vocal about their back-to-office plans, especially in industries like finance. The urban flight resulted in a 6-8% population loss in cities like New York and San Francisco during the pandemic, but it seems to have stabilized. This trend has led to implications for commercial office buildings and the concept of the doom loop, estimating a 40-50% decrease in New York City office real estate value. This decline can trigger financial doom loop risks for banks holding debt associated with these properties and urban doom loop risks impacting city budgets. Policy response is crucial in deciding how to address these threats, whether through tax increases, spending cuts, or enhancing urban amenities.

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