Over the course of 2020—at the outset of the pandemic—the market value of New York City’s office building stock plummeted by roughly a third, according to a working paper from researchers at NYU and Columbia released earlier this month. Extended to all U.S. office properties, values could fall 28% below what they were in 2019 over the next decade, even as more people eventually return to the office. But that percentage could be even higher. 

“Imagine thinking about a path where the world remains in this predominantly hybrid or remote work environment that we’re currently in for the next 10 years,” one of the researchers, Stijn Van Nieuwerburgh, told Fortune. “Then the decline is larger—it’s 38% instead of 28%.”

The researchers started considering the impact of COVID-19 on the U.S. real estate landscape back in August 2020, said Van Nieuwerburgh, a finance and real estate professor at Columbia University’s Graduate School of Business. The research team also includes Arpit Gupta, assistant professor of finance at NYU’s Stern School of Business, and Vrinda Mittal, a Ph.D. student at Columbia Business School. 

They analyzed lease data from CompStak, a database of commercial deal information that covers 105 office markets across the country, and found that lease revenues have already declined 8% from January 2020 to December 2021. Those revenue losses have come from firms that chose not to renew their leases, or renewed for less floor space than before. Companies with a larger share of remote job listings were more likely to be the same ones lowering their demand for commercial office space. 

But the worst for office building owners may be yet to come. Office leases in the U.S. are lengthy, lasting an average of seven years in 2020, which means that in a few years, leases from before and during the pandemic will simultaneously be up for renewal. 

“I like to think of this as a train wreck in slow motion, where essentially, only a third of the leases have even come up for renewal,” Van Nieuwerburgh said. “There’s kind of still a lot of decisions about space to be made in the next several years as these leases roll off.”

And of those companies that have renewed their office leases, many are now opting for shorter lease lengths, “kicking the can down the road until basically, the dust settles on their remote working plans,” Van Nieuwerburgh said. Very short office leases of one year or less are on the rise, increasing from 15% in 2019 to 26% in 2020 and 32% in 2021, according to Moody’s Analytics. 

The offices most affected are what the paper calls classes A-, B, and C buildings, older properties that represent the majority of the market in terms of value and space. Unlike the newer “A-plus” buildings that are well-occupied and earning higher rents than before, these buildings could face a value reduction of 44%.  

The implications for investors are huge, as Van Nieuwerburgh argues the lower-grade commercial office buildings could become a “stranded asset class” in the future, and affect how cities raise money.  

“Commercial real estate is a huge asset class, trillions of dollars. Offices are arguably the largest component within commercial real estate and pretty much every pension fund, every teacher retirement fund has indirectly some exposure to offices,” he warned. “If there will be large reductions in market rent for offices in the future, that’s also going to automatically reduce tax revenue for the government.” 

Pension funds have steadily increased their allocations toward commercial real estate since the 2008 financial crisis. 

The threat of distressed office properties also raises the question of what will happen to those spaces in the long run. Van Nieuwerburgh said some conversion for residential use is already in the works despite zoning challenges and other variables.

“People have come back in droves to Manhattan after the pandemic in the past year. It’s just that they don’t want to be in the office,” Van Nieuwerburgh added. “There’s a huge shortage of housing, so it seems like an opportunity to convert some of those class B, C offices that’s potentially convertible into residential and help to lower the rent a little bit.”