D.C. Says Its Commercial Properties Lost Another $1.5B In Value, But 'This Is Certainly Not The Bottom'
Falling commercial property values have dealt a blow to D.C.'s tax revenues over the last two years, according to a new report from the city, but the numbers released are expected to be just the tip of the iceberg.
The city's total assessed commercial property values fell about $1.5B from 2022 to 2023, according to the District’s Annual Comprehensive Financial Report released Thursday, first reported by the Washington Business Journal.
The report says the commercial property values totaled $101.2B in fiscal year 2023, which ended in September, compared to $102.7B in 2022. The year-over-year dip is modest compared to the fall from 2021, when the assessed value of commercial property was $112.7B. That two-year decline represents more than $200M in lost tax revenue for the District, WBJ estimates.
“The picture for commercial property is very disconcerting,” D.C. Policy Center Executive Director Yesim Sayin told Bisnow in an email. “This is certainly not the bottom.”
Sayin said the District's assessed property values largely represent a view from two years in the past, so 2023's values reflect the environment in 2021. Given the continued office distress and the recent slew of sales in which office properties traded hands for around one-third of their prior prices, values are only expected to decline further.
“Things have deteriorated since [2021],” Sayin wrote. “There has been an uptick in sales of distressed office buildings with asset devaluations around 35 to 40 percent. While not all properties are under distress, this type of adjustment would be very painful from an economic and revenue perspective.”
D.C's new financial report shows a $29M increase in collected property taxes year-over-year, from $2.95B in 2022 to $2.98B in 2023. Though the report does not break down residential versus commercial collections, the commentary notes that the “minimal” gains stem from residential property taxes.
“The residential market has notably outperformed the commercial market since the COVID-19 pandemic,” the report reads.
D.C. Chief Financial Officer Glen Lee told the D.C. Council last week he expects annual commercial property tax collections to fall as much as $300M below 2021 levels due to value declines, the WBJ reported.
The report shows revenue from “other taxes” declined by 39.3% year-over-year, a drop it attributes to declining deed taxes due to reduced sales.
“The decline in deed taxes … resulted from reduced sales and financing of real estate properties in the District, influenced by the higher interest rate environment,” the report says. “Furthermore, the sale and transfer value of commercial property transactions notably decreased from pre-pandemic levels due to increased vacancy rates and reduced demand for office space within the city.”
Though D.C. has already collected the taxes for 2023, owners are only around two-thirds of the way through the appeals process, Grant Steinhauser, a principal at property tax consulting firm Ryan, told Bisnow.
This means the District will still issue refunds to owners who are successful in the final stage of their appeals, as it does every year, he said. And amid a rapidly changing commercial values environment, he said the total refunds are going up each year.
Meanwhile, owners are preparing for the District to send out tax assessments for the next fiscal year in the coming weeks, launching a process that is expected to be especially contested this year.
