Taxstradamus Strikes Again: DMV Commercial Real Estate Forecast

A while back, we posted a video on our LinkedIn stating we felt like Taxstradamus when a prediction we made regarding DMV commercial real estate assessment notices came true. In fact, we’ve continually beat the drum around market issues in the D.C. commercial space – particularly office – and the potential tax implications for owners.

Unfortunately, we once again feel like Taxstradamus thanks to a recent article from ABC 7 detailing how increasing office vacancy rates are impacting the DMV economy. The article states that according to CBRE and JLL, nearly a quarter of Washington, D.C.’s office space now sits empty – the highest vacancy rate ever recorded.

However, as we have been saying here, the worst for DMV commercial real estate may not be here yet. Why? Because foreclosures are up and property values are down. And as we discussed previously, property values typically have an outsized impact on jurisdictional tax revenues. According to ABC 7, D.C. is projecting a “$464 million loss in property taxes over the next three years—all because of empty offices.”

And that, my friends, is likely bad news for property owners. Just because values go down doesn’t mean assessments will, too. In fact, office owners may find themselves facing a bigger tax bill despite dropping values if the city decides to raise tax rates to offset projected shortfalls. Historic evidence backs that up, as measures to reduce real estate taxes by elected officials aren’t often advanced. In fact, it’s rare in the Washington, D.C., area to see a net reduction in your real estate tax bill.

There are some glimmers of hope however, including the recently proposed tax rate freeze for certain asset types being repositioned for other uses. As we wrote then, if you own or manage a commercial asset in the District that you’re considering redeveloping, applying for that incentive is a no-brainer. But not every owner has that option, which means you need a new tax strategy. And with decades of experience in Washington, D.C., real estate and tax, the team at Cavalry is uniquely positioned to help you develop one. Reach out anytime – we would love to see how we can help.