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The commercial real estate market faces a lasting decline in value due to the permanent shift to remote work and outdated building technologies.

What’s in your portfolio? Regardless of the specifics, all commercial real estate is being swept into the maelstrom of a growing industry phenomenon: the plummeting market value. This shift is not a transient blip but a lasting reminder of the seismic changes in commercial real estate since the onset of the COVID-19 pandemic. The term “lost value” doesn’t even fully capture the current landscape’s reality.

The vortex of declining values encapsulates the “reverse of musical chairs” dynamic plaguing the leasing of commercial office space. Post-pandemic, many companies identified a segment of their workforce that could operate permanently from home, leading to a significant bifurcation. Roughly 30%-35% of employees now work remotely, reducing the demand for leased office space in both downtown and suburban locations. This permanent home-based workforce has drastically shrunk the demand for office leases.

The resulting surplus of office space and dwindling demand creates a “reverse of musical chairs” effect. Buildings with low occupancy today risk even lower occupancy rates as leases expire and tenants migrate to better, cheaper spaces.

This shift towards higher vacancy rates is not fleeting. Real estate executives and the banks that finance them must universally recognize this new reality. Appraisers, too, must wake up to the full picture. They continue to use outdated metrics, failing to account for a building’s intelligent amenities and overall relevance in today’s market.

Some so-called real estate “experts” claim that the current decline in real estate values is a temporary phenomenon tied to the pandemic’s high vacancy rates. However, this view is myopic. The workforce’s permanent bifurcation and the obsolescence of many buildings due to technological advancements suggest a lasting shift.

In previous analyses, I argued that cities and real estate executives must upgrade their infrastructure to support new modes of transportation and commerce. A seamless integration of these elements is essential for progress. Innovations like drones and air taxis should be considered and implemented, transcending outdated systems like trains and light rail.

Yet, how many major cities are seriously considering these futuristic upgrades? Few, if any. Many simply pay lip service, lacking concrete plans or commitments. True leadership demands bold, immediate action, not distant, vague goals. A real leader would commit to having operational drones and air taxis within five years, treating them as regular parts of urban transit.

Are we at the bottom of the commercial real estate market? Some urge to buy at a discount, but how can they be sure we’ve hit bottom? Using outdated appraisals, they guess rather than know.

Take, for instance, a suburban Ohio Class B office building appraised at $4,252,600 in 2024. After reassessment, its value plummeted to $2,563,000. Now, up for a court-ordered sale, the reserve is set at $1,700,000. Is this the bottom? How can they establish a reserve for a building in free-fall?

In my view, “junk is still junk, even at a discount.” Obsolete buildings won’t attract tenants unless they undergo significant upgrades to support critical corporate applications.

How many new buildings in growth-mode cities are being designed with the future in mind, such as rooftops capable of supporting vertiports for drones and air taxis? Likely none. When questioned about rooftop reinforcement for air taxis, a construction executive looked baffled. Why isn’t this being thought through?

If air taxis are indeed the future, why are we designing buildings that will be technologically obsolete upon completion? New constructions should incorporate future-proof infrastructure to support emerging technologies over the next 20-40 years. Retrofitting existing buildings to handle such advancements is impractical.

A comprehensive appraisal must assess a building’s three-dimensional value, including intelligent amenities, rather than relying on outdated two-dimensional metrics. The current glut of office space drives prices down due to oversupply.

In a market where numerous buildings compete for tenants, those lacking intelligent amenities will lose out. Rates will drop as landlords scramble to fill vacancies. Tenants will demand lower rates, especially from buildings that do not support the technological needs of modern businesses.

This trend is not new. Similar dynamics played out in Silicon Valley in the mid-1980s during a space glut. Buildings offering resilience—redundant power sources, multiple network carriers—can command higher prices because they better support business needs.

Future building designs must consider whether rooftops can serve as revenue-generating vertiports for air taxis. This requires strengthening roofs and increasing the power supply to charge these vehicles. Existing buildings with inadequate infrastructure will become less desirable and face demolition.

In the final analysis, traditional appraisal methods are obsolete. The real estate industry must adopt a forward-looking approach, recognizing the permanent shifts in workforce dynamics and technological requirements. Only then can it address the true value of commercial properties in today’s evolving market.

James Carlini is a strategist for mission critical networks, technology, and intelligent infrastructure. Since 1986, he has been president of Carlini and Associates. Besides being an author, keynote speaker, and strategic consultant on large mission critical networks including the planning and design for the Chicago 911 center, the Chicago Mercantile Exchange trading floor networks, and the international network for GLOBEX, he has served as an adjunct faculty member at Northwestern University.