As Disney tells employees to return to the office, other organizations wait and see. Is remote work permanent, or just a blip? There are many property tax implications to consider.
The uncertainty associated with property assessments has reached new heights in 2023. In fact, it has become such a pronounced issue that it is taking up a great deal of space in publications across the industry, including ours.
Thus far, the theme seems to be standard: vacancy rates will climb, occupancy rates will remain low, and hybrid work is here to stay. The net effect of all this is lower property values. But in fairness, there is another side to the story.
The pandemic forced employers to create hybrid work environments, which at the time, they saw as a temporary measure. Over the course of more than two years, working from home became normalized to the point, many believed the shift would be permanent.
These dynamics have created a series of increasingly contentious disputes between property owners and government assessment offices over differing opinions on building value. Prior to the pandemic when there was much more certainty around building values, disputes like we are now seeing between owners and assessors would have been unheard. Subsequently, property tax professionals in large institutions, responsible for paying bills did just that: many paid property tax bills without questioning – it was a reflexive activity that, after a while, became the status quo for many.
But now, a new era is upon us. Cities like New York and Chicago desperately try to maintain publicly-funded services, with much of that funding reliant on property taxes. With occupancy and vacancy rates climbing at an alarming pace, building owners are questioning their property valuations. As a result, cities often distribute tax bills with values building owners are finding increasingly hard to accept. Of course, this is all predicated on the idea that high vacancy rates for office buildings are here to stay. Should we accept this and start making permanent plans, or is there another side to this discussion?
After observing the impacts of working from home, some large organizations are now trying to restore what was once their status quo – i.e., a return to the office. One of the more prominent organizations that has recently taken this stance is The Walt Disney Company. This recent piece on the CNBC website, as well as this discussion from Forbes, provides some details.
When Bob Iger reclaimed the helm of the company after taking a hiatus, one of his first significant directives was to mandate employees come to the office at least four times a week. In an email to employees, Iger emphasized the importance of face-to-face contact, something that simply couldn’t be replicated in a virtual environment.
If this was an isolated case, it would be just that, but slowly, companies are quietly telling their employees to come back to the office. Though it may not represent a flood at this point, Disney’s decision does provide some indication that the lure of a central office is just too strong to surrender permanently.
Given the nature of discussions we have been hearing between municipal tax officials and building owners, we see that there are two completely different perspectives on the topic, which ultimately leads to disagreement on values. After spending a few recent posts explaining this from the perspective of those who believe a central office is a vestige of a bygone era, it is important to show that, ultimately, there are always two sides to a coin.
From the perspective of property tax professionals, this moment demonstrates how nuanced property tax management can be. In a pre-pandemic, status quo real estate world, property tax-related details may not have been all that important. However, in this dynamic, fast-changing market with little predictability, property tax professionals need to understand a myriad of issues, data points and nuances. When determining a reasonable assessment value, weighing the costs and benefits of an appeal, and ultimately mounting that appeal, the ability to strategically gather intelligence can make the difference between a healthy and bleeding portfolio. In this regard, having the right tools is important. Among those tools, itamlink is one of the most valuable.
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