'Hard To Fathom': NYC Says Office Values, Even At Class-B Buildings, Rose Last Year

Despite economic headwinds and a historically slow leasing market, the New York City Department of Finance has determined that the average office building, regardless of age, is more valuable today than it was before the pandemic.

The NYC DOF released its tentative property tax assessment roll this week, showing that the city-determined property values have increased over the past year. 

Even with predictions of an imminent wave of distress making its way toward the city’s office market, total assessed values for office buildings are estimated to rise by 2.5% for fiscal year 2025, meaning that owners can expect their taxes to go up too.

The market value of trophy office buildings citywide went up by 5.6% from FY 2024 to FY 2025, according to NYC DOF data. The next biggest increase was Class-A office space, which recorded an increase of 3.75%.

Most surprisingly, the DOF said Class-B office values increased by 3.17%. As such, the taxable assessed values also recorded increases of 3.43% for trophy offices, 3.01% for Class-A and 2.6% for Class-B.

“It does seem a little hard to fathom how they arrived at that,” Marx Realty CEO Craig Deitelzweig told Bisnow. “It seems that it's out of sync with where the market conditions are.”

The overall value of office buildings in the city hit roughly $173B, which isn't just an increase over last year's tax roll but also higher than pre-pandemic when the city's office values totaled $172.4B, Crain's New York Business reported.

The city cited “changes in market forces” as the reason for the increase in its announcement of the latest assessments. DOF Commissioner Preston Niblack said in the release that the tax roll is indicative of the recovery that the city’s real estate market has experienced over the past year.

“Office building values grew modestly, driven largely by the perennial attractiveness of trophy and premium spaces,” Niblack said in a statement. “One positive indicator was a resurgence in construction and renovation spending after 3 years of decline.”

But Benjamin Williams, a Rosenberg & Estis member attorney who leads the firm's property tax department, disagreed with the assessments.

“The DOF has over-assessed a lot of properties in an environment where office vacancies are the highest they have ever been, incentives are the highest they’ve been in years, and we have continued weakness in the market,” he wrote in an email. “Nowhere in the assessment has the department taken into consideration the current high interest rate environment, and we expect to be filing hundreds of challenges on behalf of our clients.”

Construction spending over the first 10 months of 2023 reached $83B, according to the New York Building Congress. The NYBC also predicted that around $261B would be spent on construction between 2023 and 2025, an 18% increase from pre-pandemic spending even with housing production nearly at a standstill.

How many workers are actually using the city's office buildings has been a point of contention.

Many city landlords, as well as the Real Estate Board of New York, argue the widely cited Kastle Systems Back to Work Barometer, which has consistently pegged office occupancy in the city at around 50% of pre-pandemic rates, is lacking because it doesn’t track some of the city’s newest buildings, including those from landlords like SL Green and Vornado.

Cellphone-tracking firm Placer.ai reported that in December, visits to New York City office buildings were only down 20% from the same month in 2019, the strongest return rate in the country. The data is seen as limited, though, because it tracks all visits to office buildings, including to their retail spaces, while Kastle tracks office workers' access cards, Crain's reported.

Regardless of how full they are, many office buildings in the city are facing a more pressing concern: record levels of debt that are coming due in the next few years.

A wave of foreclosures and owners handing over keys to their lenders began in earnest last year, and industry experts have said they expect the worst is yet to come. WeWork's bankruptcy only added more concern about the health of the office market, as many owners that leased space to the coworking giant have faced distress.

The city should be taking those factors more into account when evaluating office values, Deitelzweig said.

“Office taxes, and commercial taxes generally, are such a big part of the budget,” Deitelzweig said. “I think it is important that the city realize that and act accordingly, and really help foster a better environment for everybody with whom they're taxing, and appreciate the taxpayers.”