Office Real Estate Value Decline Will Weigh Heavy on City Coffers

Although this article by Bloomberg is specifically about Boston, I highly doubt it is the only city in the country to face a significant tax revenue squeeze as office real estate tax revenue declines in lockstep with its values. One-third of Boston's tax revenue is based on commercial real estate, whereas other major cities depend on it for only 5%—15% of their tax revenue.

The story behind the story is that as of January 2023, Boston led the US with the most new office space under construction. Large office projects in cities like Boston take many years to come to fruition. Many of these projects were likely fully or partially leased before construction, but leases or not, office valuations are going down, and Boston has some wood to chop.

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Boston Led the US in New Office Space Construction

As cities grapple with their revenue shortfalls, tax assessors will continue to focus on commercial real estate. It's much easier to raise the tax rates on a building leased to Amazon than on workforce housing. As real estate investors, we must pay close attention to the real estate tax trends where we invest. It's an expense line item over which we have some say, but no control.