Office-Vacancy Rates and Residential Real Estate Taxes
The Arlington Sun Gazette carried two quite detailed stories in August that I missed (HT Wayne Kubicki). Both concern the possible (probable ?) impact that higher office-vacancy rates could have on residential property taxes.
In the story posted August 13, 2012 at the Arlington Sun Gazette website, Scott McCaffrey begins this way:
"Office-vacancy rates across Arlington are on the rise, and if the trend continues, the county government could lose a cash cow and homeowners could bear the brunt in the form of higher taxes.
"The overall vacancy rate for commercial property countywide was 13.4 percent in the second quarter of 2012, according to figures from CoStar reported by Arlington Economic Development. That’s an increase from 12.9 percent in the first quarter and was up from 9.3 percent a year ago.
"Arlington’s vacancy rate remained below the Northern Virginia average of 14.9 percent in the second quarter, but many other commercial corridors across the area have been showing an improvement even as vacancies rise in Arlington."
Three days later, on August 16, 2012, McCaffrey wrote about the "concern over increasing office-vacancy rates" by County Board members Libby Garvey and Mary Hynes. He began the news article writing:
"Arlington’s elected leaders acknowledge they are wary of the high level of office-vacancy rates in the county, but are not ready to hit the panic button just yet.
"“It’s a concern. Not a huge concern, but something you need to be aware of,” County Board member Libby Garvey said in response to news that the overall vacancy rate for commercial space in Arlington grew to 13.4 percent in the second quarter of 2012, and reached 18.6 percent in Crystal City.
"Those rates had been 9.3 percent and 10 percent, respectively, a year before.
"Garvey’s level of anxiety was shared, perhaps a touch more aggressively, by County Board Chairman Mary Hynes.“I am fairly concerned about this,” said Hynes, who said that while the short-term implications of empty office space were not of end-of-the-world dimensions, the long-term impact could be “deeply concerning.”
According to McCaffrey, "The biggest office-vacancy concern is in Crystal City, where the second-quarter rate of 18.6 percent is approaching double the rate from a year before, according to county figures." He then explains why Arlington residential property owners should be concerned about the direction of commercial property values, saying:
"For each of the past two years, increasing commercial assessments have kept real estate tax rates for homeowners from rising more than they might have otherwise. Higher vacancy rates could have an impact – both macro and micro – on assessed values of commercial real estate across the county, since net income of properties is one key factor in the county’s arriving at assessed valuations.
"Commercial-property values increased by 13.5 percent, to $30.1 billion, from 2011 to 2012, and now represent 49 percent of the overall county tax base. That’s up from 45 percent last year – more than double most neighboring jurisdictions.
"Such a large commercial base brings in hundreds of millions of dollars in revenue to the county government’s coffers, while requiring just a fraction of the total in services."
The two articles are well-worth spending a few minutes to read in their entirety since the value of Arlington County's commercial real estate has such a major impact on the taxation of residential real estate.