DC Commercial Property Values Fell $11B in Two Years
That’s $200M in forgone tax revenue
By Keith Loria February 8, 2024 1:13 pm
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Washington, D.C.’s latest financial paints a grim picture for commercial real estate in the District — and the tax revenues it contributes.
Total assessed commercial property values decreased approximately $1.5 billion from 2022 to 2023, based on the District’s Annual Comprehensive Financial Report released last week at a Committee of the Whole Public Oversight hearing.
What’s more, the numbers have fallen by just under $11 billion the past two years.
The assessed value of all taxable commercial property in the District for fiscal year 2023, which concluded on Sept. 30, was $101.8 billion, compared to $102.7 billion the year prior and $112.7 billion in fiscal year 2021. That translates to a 9.6 percent drop.
That two-year decline represents more than $200 million in forgone tax revenue according to the Washington Business Journal, which first reported the news. Overall, tax revenues dropped 40 percent year-over-year, per the report.
The decline in commercial office occupancy is a major factor depressing values, and continues to slow the District’s recovery from the pandemic, per the report — and does not look to be improving anytime soon.
Up to 65 percent of all commercial leases in the District are up for renewal over the next four years, Kevin Donahue, Washington, D.C.’s city administrator, told the City Council when the report was presented. The 2025 budget will be one of the most difficult to plan since the days of the Great Recession, he said.
The drop in property values led Glen Lee, D.C.’s chief financial officer, to predict that D.C. would collect $250 million to $300 million less in commercial property taxes over the next year as well.
“It sends a strong and concerning signal that we must remain vigilant about where we are seeing dramatic shifts in our economy and act quickly to reverse those trends,” Brooke Pinto, a D.C. councilmember, said during last week’s presentation. “We know that investing in our downtown is absolutely essential to fill our office vacancies and revive our commercial property tax revenue.”
There were 5.8 million square feet leased in the District in 2023, a large drop from the 8 million square feet leased in 2021 and 7.3 million in 2020, and many office buildings are hurting. Some of these office properties are looking to convert to other uses, which will remove them from the office inventory, creating less taxable income.
The report also revealed the sale and transfer value of commercial property transactions fell from pre-pandemic levels largely due to increased vacancy rates and reduced demand for office space within the city.
Another alarming figure from the report noted there were just 32 new office construction projects begun in 2023, the lowest in the last 10 years. Comparably, there were 39 in 2022 and 116 in 2021.
Keith Loria can be reached at Kloria@commercialobserver.com.
