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March 29, 2023

What is the Future of Real Estate in Downtown Boston? #RethinkTheNews

Economists and urbanists comment on the hollowing out of downtown Boston that resulted from the pandemic. From initial impact to long-term implications, how will today’s occupancy rates affect municipal revenue requirements?

After three years of uncertainty brought on by the pandemic, numerous predictions continue to swirl on the topic of commercial real estate values. From a municipal revenue perspective, policymakers continue to take a wait-and-see approach when assessing long-term commercial real estate values. Of course, this is crucial for local governments because these values directly affect local budgets and services.  

As companies begin establishing ‘back to normal’ protocols, they also watch how quickly workers return to the office. This moment begs the question, how aligned are companies and workers on the topic of in-office, work-from-home, and hybrid arrangements?  

A recent article in CommonWealth, a Boston-based magazine covering public policy and civic life, painted a picture of lower demand for office space in the long term. Inevitably, lower demand will negatively impact building values. This shift in work patterns in US cities like Boston and beyond could decrease the tax revenue these buildings contribute to city budgets.

The article draws a distinction between vacancy rates and occupancy rates. While a building’s vacancy rate might be 15% in current market conditions, its occupancy rate may stand at 50%. This means that despite the landlord collecting rents on longer-term leases, 50% of the building is unoccupied. The financial implications of this will only materialize after those leases begin turning over.

We have previously discussed varying building classes, and this is notable because the drop in demand will likely be greater for B- and C-class assets. This is concerning, given the fact that 75% of the revenue funding Boston’s $4 million annual budget is from property taxes—with 60% of that figure depending on the property taxes generated on commercial properties specifically.  

Undoubtedly, many will see the perfect storm gathering around previously dense office communities as a cause for concern; however, there are many factors that still haven’t been fully incorporated into the equation. Real estate trends are generally reported as if what is happening in one moment will permanently continue. Perhaps seeing every scenario as a permanent reality is a safe way to mitigate risks in real estate. That said, it is very possible real estate values simply require time to settle.  

After 9/11 many real estate pundits suggested large enterprise would spread their operations out geographically to reduce their risk profile, and city cores would become a thing of the past. We did not see this scenario materialize as time allowed for the restoration of some degree of equilibrium. Similarly, after the pandemic, some large companies jumped the gun stating their workers could permanently work from home. It remains to be seen if this shift to work-from-home will be permanent.  

In the short term, property owners need to be mindful that there is a case to be made for paying less property tax and providing evidence in a systematic way. For anyone looking to appeal assessed property values they deem to be too high, they will need to make a compelling argument. Using the right tools makes this possible. Itamlink can play a significant role in fortifying the case to reduce assessment values, ultimately lowering property taxes. If you want to see how this is done, book a no-obligation demo of itamlink today.

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© 2023 Rethink Solutions. All Rights Reserved