Boston Property Owners Seek Tax Relief Amid Plummeting Office Valuations

A recent report from Tufts University's Center for State Policy Analysis forecasts a substantial decline in office property values in Boston, estimating a drop of approximately 30% by 2029. This decline is anticipated to result in a significant loss of tax revenue for the city, totaling around $1.5 billion over the next five years. Commercial properties overall are expected to see an 18% decrease in valuation.

Implications for Tax Revenue

The expected decrease in office property values will have profound implications for Boston's tax revenue. If measures to address office vacancy rates aren't implemented, the city could face a "new normal" with annual tax collections projected to be $500 million lower by 2029 compared to current levels.

Industry Perspective

Greg Vasil, CEO of the Greater Boston Real Estate Board, underscores the severity of the economic situation highlighted in the Tufts report. He emphasizes the dramatic shift in tax revenue dynamics due to COVID-19 and changes in work routines, emphasizing the need for immediate action by city officials.

Dependence on Property Taxes

Boston relies heavily on property taxes to finance essential services such as law enforcement, public works, and city personnel. In fiscal year 2023, office buildings contributed approximately 22% of the city's total budget, highlighting the significant dependence on commercial real estate.

Comparison with Other Markets

Unlike other major cities such as Chicago, Miami, New York, and D.C., where commercial property taxes represent a smaller percentage of city revenues (between 5% and 15%), Boston's heavy reliance on property taxes stands out. This is attributed to the absence of local sales and income taxes as significant revenue sources.

Challenges and Solutions

The report suggests limited avenues for addressing the looming revenue shortfall. With restrictions on the use of sales and income taxes for revenue generation, raising residential property taxes emerges as a potential solution. However, the report highlights the challenges associated with this approach, including potential negative impacts on homeowners and multifamily landlords.

Anticipated Adjustments and Actions

While declines in building valuations have yet to materialize, adjustments are expected, particularly as commercial property assessments are revised. Office landlords have already begun seeking tax abatements, reflecting the disparity between assessed values and market realities. The city's older office stock is anticipated to undergo significant tax assessment reductions in the coming years due to rising vacancy rates.

Efforts and Consequences

Efforts to revitalize Boston's downtown through tax incentives for office-to-residential conversions may not fully mitigate the decline in tax revenue. Residential properties typically generate lower tax revenues compared to commercial properties, contributing to a permanent decrease in tax revenue according to the Tufts report.