One of the tallest office towers in St. Louis lost 96% of its appraised value. Denver’s former World Trade Center complex faces foreclosure. An oil company’s vacant Houston workplace sold this year at a $67.4 million loss to lenders, Bloomberg reported. Those properties are among the 30% of U.S. office buildings — worth an estimated $1.1 trillion — that are at high risk of becoming obsolete as tenants’ tastes change in the hybrid-work era, according to Randall Zisler, an independent consultant and former head of real estate research at Goldman Sachs Group Inc. Some companies are scaling back their space. Others are gravitating to newly developed or recently overhauled offices that are environmentally friendly, with plenty of fresh air and natural light, fitness rooms and food courts. Left behind are older buildings that would be expensive to renovate to today’s standards. As values for those properties slide, some landlords are walking away. “We’re not saying bulldozers are arriving en masse,” Zisler said. “But you’re going to see a repricing and, in some cases, reuse of these buildings.” Average U.S. office values remain 4% below their pre-pandemic levels, the worst performance of any type of commercial real estate, Green Street data through February show. A deeper look shows a divided market: While prices for newer, amenity-filled offices have gained about 15%, they’re down 20% for smaller, older properties, Zisler said. In addition to $1.1 trillion of endangered buildings, another $1.1 trillion make up a “mediocre middle” with limited upside because of uncertainty about long-term demand and potential renovation costs, Zisler estimated. Top-tier buildings, worth about $3.2 trillion, are likely to gain value as tenants move up in quality. Buildings that opened since 2015 recorded more than 51 million square feet of occupancy gains since COVID hit, while vacancies swelled elsewhere, according to Jones Lang LaSalle Inc. The divide is most pronounced in big-city markets where more than 70% of office stock is at least three decades old, such as New York, San Francisco, Los Angeles, Boston, Chicago and Philadelphia.
