Roundtable Weekly
Increase in Office Vacancy Rates Threaten Municipalities’ Tax Base; Remote Work Seen as Contributing Factor
December 3, 2022
Chicago cityscape sky view

The Roundtable’s Q4 Economic Sentiment Index released this month noted the influence of hybrid work arrangements on the office market. (News Release and Entire Q4 Report, Nov. 18) 

Roundtable View 

  • Roundtable President and CEO Jeffrey DeBoer commented, “We continue to urge policymakers and business leaders to push for the safe return of workers to their shared, physical workspace,” DeBoer said. (Connect CRE, Nov. 22 and CoStar, Nov. 21)

  • He added, “A back-to-the-workplace movement would increase overall economic productivity and competitiveness, help preserve urban small businesses, and lower the threat to the property tax base of municipalities throughout the nation.” (News Release and Entire Q4 Report, Nov. 18) 

National Vacancy Rates 

Vacant office space NYC view
  • Recent industry reports show hybrid work arrangements are contributing to increased office vacancy rates nationwide and threatening the health and well-being of American cities. 
  • A national report issued this month by CommercialEdge shows that large swaths of companies that have embraced remote and hybrid work since the onset of the pandemic have influenced the current decrease in demand for office space in most markets. (Commercial Observer, Nov. 21)

  • CommercialEdge reports U.S. vacancy rates rose over the previous 12 months in 86 of 120 markets, including 22 of the 25 leading office markets. (National Office Report webpage and pdf, Nov. 2022)

  • CommercialEdge Senior Manager Peter Kolaczynski stated in the report, “Work-from-home solidifying itself, plus broader economic uncertainty, are set to continue the stress on the office industry as we enter the new year.” 

Risks to Local Tax Revenue 

DC city view
  • In Washington, DC, office owners alerted city officials this week that a dramatic and persistent decline in commuter activity—exacerbated by remote work—has contributed to deteriorating market conditions. The landlords warned that DC may face a significant loss of tax revenue that could threaten the city’s fiscal health, and that other cities are experiencing similar conditions. (Commercial Observer, Nov. 29 and Bisnow, Nov. 28) 
  • Prominent DC office landlords sent a letter on Monday to the city’s chief financial officer about eroding local market conditions, including increased vacancy rates, lackluster leasing activity, equity flight, and a financing drought—especially for assets with high levels of vacancy. The pandemic and work from home have further eroded fundamentals and all indicators of the health of the District’s office market point increased systemic risk and distress,” the letter states.
  • “For every decline of $100 million in commercial property tax assessments, annual property tax revenue falls by $2 million. It is vitally important for city officials to fully comprehend the difficult environment commercial office buildings are operating under and the risks to the future tax revenue,” the letter noted. 

Signatories to the Nov. 28 letter—including Carr Properties, JBG Smith, Boston Properties, Brookfield, Trammel Crow and Hines—offered to work with DC officials to discuss potential means of addressing “this enormous challenge.” 

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