Philadelphia’s Assessed Office Value Expected To Plunge $1B Amid Spike In Appeals

As Philadelphia battles high vacancy, falling values and some of the lowest return-to-office numbers in the nation, city officials are grappling with how to handle a massive anticipated hit to the assessed value of its major office properties.

A rapid rise in property tax appeals from struggling office owners has the city bracing for a budget squeeze beginning in fiscal year 2025, and it is already planning how to absorb the tax shortfall, CoStar reported. Revisions to assessments are expected to reduce the value of Philly offices by as much as $1B.

“It's a big concern and something that we’re building into our plan,” Finance Director Rob Dubow said in a statement to CoStar. “It will be a hit to revenue.”

Philadelphia has struggled to get people back to the office, with JLL reporting the city’s office vacancy rate had climbed to 19.1% as of the close of 2023.

Meanwhile, one analysis estimates the market has already lost $10B in value since the onset of the pandemic, and the city came in dead last behind nine other metros for the percentage of people keying into their buildings compared to pre-pandemic, according to the most recent report from security company Kastle Systems.

As a result, office owners have fought to appeal assessments at a higher-than-average rate, including owners of some of the city’s highest-valued properties.

1735 Market St. won a 7.6% reduction, from $422.2M to $390M, after going before the city’s Board of Revision of Taxes last year, according to the Philadelphia Business Journal. In January, owners Nightingale Properties and Wafra Capital Partners secured a reduction for the city's largest office property, Centre Square, under an agreement that dropped its 2023 assessment 31%, from $362M to $275M, then to $250M for 2024, a 24% decrease.

The revision marks a combined savings of nearly $3M for Centre Square's owners across both years — one that is badly needed for the troubled 1.8M SF building, whose owners failed to pay off a $368M CMBS loan before its maturity date, causing it to fall into receivership about a year ago.

Philadelphia officials aren't alone in worrying that a spate of appeals will put a dent in city coffers. CoStar reported that cities from San Francisco to Boston are projecting the assessed value of office buildings could fall by billions of dollars as they work their way through an elevated number of requests for revisions.

“Assessments are far exceeding what we're seeing on transactions,” Shane Moncrief, a principal with global tax services provider Ryan, told the outlet. “Tax assessors are always looking in the rear-view mirror because that's the data they have, but as the office market continued to deteriorate throughout last year, most assessors had already set their values based on looking back at 2022.”

Tax revenues from offices made up 6.8% of the $204B Philadelphia collected in 2023, according to a Pew report.