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A new Boston Policy Institute report warns of serious challenges ahead for Boston’s commercial real estate market and city finances. The Institute projects office values in Boston could fall 35% to 45% from 2024 levels. This decline is expected to widen the city’s budget shortfall from $135 million this year to over $550 million by fiscal 2029, totaling $1.7 billion in losses over five years.
The report shows that changes in work habits, especially remote work, combined with high interest rates, have reduced demand for office space and weakened Boston’s financial base. Commercial property taxes, which fund about a third of the city’s budget, are under threat as the office market struggles.
Boston relies far more on commercial property taxes than other major U.S. cities, where commercial properties typically make up about 10% of revenue. High-profile office buildings have recently sold at steep discounts of 50% to 70%. Meanwhile, office vacancy rates have jumped from 8% in 2019 to 24% today.Â
The report warns that increasing taxes on commercial properties could deepen the problems in the office sector and hurt retail businesses.
Facing these financial pressures, Boston may have to make difficult budget decisions. Options include raising residential property taxes or cutting spending to match lower revenues. The report says large tax increases carry economic and political risks, while cuts to services would be unpopular.
The report urges Boston to rethink its tax and budget policies to meet the reality of a shrinking office market. Without change, the city’s financial outlook could worsen, threatening services and placing tough choices on public officials in the years ahead.
