Empty Offices Are A Problem For Homeowners, Too

Propmodo Daily

Greetings!

Rising office vacancies lead to higher residential taxes as local governments face revenue shortfalls. Plus, we have the results of yesterday’s reader poll about President Biden's national rent control proposal.

Multifamily buildings have come a long way since the pandemic. In order to highlight some of the innovations that are changing the multifamily industry we have selected five of the country’s most innovative multifamily buildings in this month’s innovation showcase.

Now, let’s dig in!

Empty Offices Are A Problem For Homeowners, Too

The national U.S. office vacancy rate hit a record high of 20.1 percent in the second quarter, the highest since at least 1979. Many remote employees who have resisted returning to the office aren’t shedding too many tears over this. However, one side effect of the rising office vacancy rates could impact some remote employees more than they may realize.

Falling property tax revenues are putting pressure on state and local government budgets nationwide. Municipalities and counties depend on property taxes for everything from policing to street maintenance to schools. Office properties have long been an important funding source through property taxes based on property values. Everyone in the real estate industry knows how far office values have fallen in recent years.

A shortfall in office property tax revenues means many local and county governments must look elsewhere for revenue sources. A likely source will be increasing tax rates on different properties, including commercial and residential. This process is already underway in the U.S., including in Minnesota, where the property tax system is based on Net Tax Capacity (NTC). NTC determines how much of any building’s value can be taxed by state and local governments.

In cities like those in Minnesota, the tax burden has started shifting to suburban residential homeowners. Between 2021 and 2024, residential property taxes increased by 23 percent as residential values outpaced commercial values. This bumped the residential tax burden in Minnesota by 200 basis points, adding about $45 in property tax per single-family home.

Moody’s Analytics projects U.S. office vacancies will climb for the next few years, peaking at the end of 2026. The situation might worsen if the economy moves into a more severe downturn. Some employees may cherish remote work, but the side effects of this preferred work arrangement could mean higher taxes for everyone as local governments grapple with lower property tax revenues.

Feedback Loop

Yesterday, we discussed President Biden's rent control proposal which would cap some rent increases at 5%. We asked you if you thought this would help the housing affordability problem in America. Here is what you said:

65.25% said yes, Federal rent control policies will help lower housing costs.

34.75% said no, nationwide rent control will not ease the housing affordability problem.

What’s Happening in Commercial Real Estate

Houston, we have a problem
A group of Houston restaurants that lost power for days after Hurricane Beryl is suing the city’s leading utility, CenterPoint Energy Inc. The lawsuit alleges the utility failed to invest in infrastructure and adequately respond to widespread power outages.

Better than nothing
Seattle’s city government passed a new law incentivizing developers to convert office buildings into housing. Even with the new law, officials expect less than a dozen conversion projects to result in 1,000 to 2,000 new housing units over the next seven years.

Propmodo Technology

Indoor air quality (IAQ) is essential in post-pandemic building environments. But, balancing IAQ with energy efficiency can be challenging. Strategies such as commissioning and advanced HVAC systems can help improve occupant health and ensure regulatory compliance. Effective planning, technology integration, and maintenance are crucial for achieving high IAQ standards, reducing operational costs, and enhancing tenant satisfaction.

Check out this week’s Propmodo Technology focus on HVAC and Indoor Air Quality with the support of our friends at Partner Engineering and Science, Inc.

What to Watch

Join us on Tuesday, July 30th, for a Propmodo Live webinar where we will explore the latest office occupancy trends reshaping workplace performance and utilization. We'll delve into shifting demand patterns, highlight success stories from various sectors, and discuss the effects of hybrid work models on occupancy and operational strategies.

Overheard

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Propmodo Daily is written and edited by Franco Faraudo with contributions from readers like you and the Propmodo team.

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