Office occupancy in the United States has soared pass the 50% mark, but emptied out cities and closed schools could still usher some level of tax-shifting within the next few years, according to a report.
Office occupancy in 10 of the largest metropolitan areas in the country rose to 53% for the week ending Jan. 31, per Fortune, citing data from security firm Kastle Systems. Despite rising to a new high, office occupancy has hovered around the 50% mark for over a year.
While cities are still able to shrug off the implications of empty office spaces, Scott Nees, director and lead analyst at S&P Global Ratings, told the outlet that the decline in the commercial real estate market could usher in a shift in taxes.
"[We may see] some level of tax-shifting, where residential and other commercial properties end up shouldering a larger share of the tax burden, given that the office share of assessed value has declined relative to other properties," Nees said in an email to Fortune.
How Do Empty Office Spaces Affect the General Public?
Local governments tend to rely on property taxes to fund schools, roads, and public services such as the police department, sanitation, and trash collection. Empty office spaces means cities get fewer in tax revenues. For instance, officials in San Francisco estimate that the struggling office sector could cut its tax revenue by as much as $200 million in 2028. In Washington, D.C., officials are projecting a drop in property values to cost $464 million in combined tax revenue over the next three fiscal years.
In some cities, the loss in tax revenue could go higher, especially if they are more reliant on commercial property taxes. Some of these cities include Boston, where taxes on commercial property account for 36% of its total general revenues; Dallas, 26%; and Atlanta, 19%, according to an analysis from the Tax Policy Center.
With the local governments generating less tax revenue, they may have to cut spending on public services or increase the revenue gained from residential properties and sales taxes.
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