If work-from-home trends stick after the pandemic, it could cause a permanent decline in demand for space and have a severe impact on property values, according to Fitch Ratings.

Fitch ran various stress scenarios to determine how telework would impact demand, rent and net cash flow on 2012-2020 vintage office CMBS transactions. Under scenarios of moderate and severe stresses, it found that 4.4% and zero, respectively, of 114 US CMBS office single-asset/single-borrower bonds maintain their current ratings.

Under its moderate stress scenario, Fitch assumes that employees will work remotely 1.5 days per week. That would result in a 20% decline in office workers and a 10% decline in office space demand. Fitch’s severe scenario doubles these assumptions. It assumes that rents decline at 1.25 times the reduction in space. In this occurrence, increased vacancies magnify declines in rent levels.

Under the moderate and severe scenarios, net cash flow declines 15% and 30%, respectively. Fitch assumes cap rates from its most recent surveillance review of 7.23% on average with these two scenarios. Those rates are significantly higher than the 4.73% appraisal cap rates at loan origination.

Using those assumptions, Fitch saw average market-value declines from at-origination appraised values of approximately 44% and 54%, respectively, for moderate and severe scenarios. If those declines occurred, 25% and 55% of investment-grade bonds could potentially fall below investment-grade under the moderate and severe scenarios, respectively. Already, property values fell by 38% on average in Fitch’s current rating analysis.

For comparison, office property values fell approximately 43% during the 2008 Great Recession. They recovered over three years. With a possible secular shift to working from home, values could take a lot longer to recover following this recession.

What ultimately determines if values will fall and how much is whether workers return to the office.

In a segment on CNBC’s ‘Squawk on the Street,’ Brett White, Cushman & Wakefield’s CEO and executive chairman, said the number of people working from home could double from 5% to 10%.

An additional 30% of office workers were allowed to work from home one or two days a week. White thinks that number will jump 50% to 60% after the pandemic. Additionally, 3 million workers lost their jobs in March and April and only 1.8 million have been rehired.

Overall, he could see companies with these agile workforces reduce their footprint by 10%, 15% or even 30%.

“A lot of employers should and will think of creative ways to use their space more efficiently,” White says. “And that’s going to be a drag on occupancy.”