Remote Work’s Negative Impact on Office Market Cited for Plunge in DC Tax Revenue Forecast
The expansion of remote work in Washington, DC has dramatically reduced tax revenue from office buildings, which poses “a serious long-term risk to the District’s economy and its tax base,” according to a Feb. 28 revenue estimate from the city’s CFO Glen Lee. (Washington Post, March 1)
$464M Revenue Drop
DC’s tax revenue is projected to plunge nearly a half-billion dollars from 2024-2026 due to remote work’s influence, reduced office transactions, and dropping asset values. (BisNow and DCist, March 1)
The quarterly report notes that tax revenue from District commercial properties —particularly large office buildings valued over $50 million—significantly declined in the past fiscal year and was the main reason for a reduction in overall real property tax revenue in FY 2022.
The city’s forecast, according to Lee’s letter to District Mayor Muriel Bowser and Council Chairman Phil Mendelson, has also been “revised downward by $81 million in FY 2024, $183 million in FY 2025, and by approximately $200 million in FY 2026.”
The report states that although real property revenue from hotels, restaurants and retail properties is expected to continue on a path of recovery, “this growth is expected to be more than offset by a deeper loss in tax revenue from office properties.”
The Roundtable View
Mayor Bowser this week stated, “With the ongoing impacts of telework and national political uncertainties, we face another significant test to our local economy.” (Bowser Statement, Feb. 28)
The letter from Real Estate Roundtable Chair John Fish,above right, (SUFFOLK Chairman & CEO) and President & CEO Jeff DeBoer, left, also urged Biden “to direct federal agencies to enhance their consideration of the impact of agency employee remote working on communities, surrounding small employers, transit systems, local tax bases and other important considerations.” (Roundtable letter, Dec. 12, 2022)
City officials in New York, Washington, Chicago, Houston, San Francisco, and Boston have also recently encouraged city workers to return to their downtown offices. (Wall Street Journal, Jan. 24)
The DC revenue forecast also warned, “The population decline observed during the pandemic, coupled with the increasing prevalence of remote work, may lead to demographic shifts and economic repercussions. With fewer commuters, there may be less demand for public transportation and office space, leading to a potential reduction in real estate prices. Policymakers will need to carefully monitor and respond to these changes.”
The consequences of remote work on CRE—and potential policy solutions—will continue to be a focus of The Roundtable.
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Roundtable Comments on EPA’s Proposed Voluntary Label for Low-Carbon Buildings
The Real Estate Roundtable submitted comments to the U.S. Environmental Protection Agency (EPA) yesterday on the agency’s proposed voluntary label for low-carbon buildings. (Roundtable letter, March 2)
Voluntary Building Label
The NextGen label would allow companies to highlight buildings that go beyond top efficiency performance—and further rely on renewable energy use and reduce their greenhouse gas (GHG) emissions. (EPA’s proposal and Roundtable Weekly, Jan. 27)
NextGen recognition has great potential for widespread market acceptance, The Roundtable stated in its comments.
EPA’s proposed program could create a uniform, voluntary federal guideline to simplify the confusing patchwork of city and state climate-related building mandates that exists across the country. (EPA Policy Brief, Jan. 19; Roundtable Weekly, Jan. 20)
EPA staff discussed its NextGen proposal with The Roundtable’s Sustainability Policy Advisory Committee (SPAC) at the “State of the Industry” meeting in January.(SPAC slide presentation)
Significant and demonstrated reductions in a building’s energy use should be eligible for the NextGen label (as an alternate, additional criterion to EPA’s proposal that only ENERGY STAR certified buildings could qualify).
The NextGen proposal would require that 30% of a building’s energy use must derive from renewables.The Roundtable recommends that the level should start at 20% and adjust over time to reflect the changing status of the electric grid as it decarbonizes through increased reliance on solar, wind, and other clean power sources.
The Roundtable supports EPA’s proposal for a GHG “intensity target” that reflects a building’s unique weather conditions by a factor known as heating degree days (HDD). The Roundtable worked closely with EPA in the pre-pandemic era to consider HDD as a key variable in the underlying ENERGY STAR building score process. (Roundtable Weekly, July 19, 2019)
Renewable Energy Certificates (RECs):
The Roundtable explained that voluntary NextGen recognition can provide much-needed guidance on corporate accounting for REC purchases and enhance credible claims on the environmental benefits from offsite clean power procurement.
The Roundtable further advised EPA that it should conduct a pilot of the low-carbon label with private and public building owners before broad release to U.S. real estate markets. EPA intends to make the NextGen label available in 2024.
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