Falling values, rising vacancy rates, and high interest rates conspiring to alter fundamentals in city finances
JUNE 5, 2025…..Citing empty offices, the durability of remote work and the impacts of persistently high interest rates, a new report paints a dire picture of commercial real estate in Boston, with potentially negative consequences for residential property taxes, those dependent on city spending and services, and public officeholders who appear unlikely to be able to escape politically unpopular choices.
The Boston Policy Institute report, researched by the Center for State Policy Analysis at Tufts University, found office values in the city are likely to fall 35% to 45% from 2024 levels, widening the city’s budget shortfall from $135 million this year to more than $550 million in fiscal 2029, and totaling $1.7 billion over five years.
“Boston leaders aren’t responsible for this collapse in office values,” according to the report, which was released Thursday. “Broad changes in the way we work combined with increases in the cost of borrowing have made office space less desirable and undermined the city’s otherwise stable financial base.”
The report lands with this year’s mayoral election ramping up. It lays out politically unappealing options for the city, including further and steady increases in residential property tax rates, or stable tax rates that would only come with spending cuts that match up expenditures with “the new reality of reduced revenues.”
“There’s no magic here,” the report said. “The way shortfalls get filled, in the current budget process, is though automatic tax rate increases. And while that may be fine when the increases are small, large rate hikes carry substantial economic and political risk.”
The report warns commercial properties are “not in a position to absorb the cost of new taxes,” and adding to the tax burdens on commercial properties “will only worsen the already-severe problems in the office sector,” in part by affecting retail properties that the report said will make up a growing share of commercial property.
High-profile Boston office buildings have sold in the last year at discounts of 50% to 70%, office vacancy rates have risen from 8% in 2019 to 24% today, and the trends are acute in Boston mainly because the city budget relies on commercial property taxes to a much higher degree than other major U.S. cities, the report said.
Commercial properties are the single biggest source of revenue for core city services, the report said, backing up a third of the city budget, compared to 10% of total revenue in the “typical city.” A stable source of revenue that has helped the city through economic cycles over the years, commercial property taxes are now central to a tax structure that “has ceased to be a source of resilience and has become a liability,” the report said.
“Given the scale of the challenge facing Boston, nearly all viable solutions require a new approach to taxing and budgeting,” the report said. “Shrinking demand for office space is not a short-term problem that the city can hope to simply wait out. It requires a durable, transparent rethinking of budgetary priorities in order to sustain and support Boston’s economic future.”
Boston Policy Institute Executive Director Gregory Maynard, a former political consultant, said his group wants to shed light on city government in Boston, and by extension to raise awareness of municipal issues.
“Boston is not the only city in Massachusetts with a lot of offices,” he said. “So this is a Boston issue, but it’s really also a statewide issue.”
Maynard said the institute, which launched in late 2023, is registered as a 501(c)(4) nonprofit. As such, it is not required to disclose its donors and Maynard said the group is not disclosing them.
Asked about the BPI report Thursday morning, Mayor Michelle Wu pointed out that BPI had opposed the compromise she struck with Boston business organizations to shield residential taxpayers from a large tax hike by shifting a greater share of the property tax levy onto commercial properties.
“We are going to continue to celebrate and highlight the progress that we have made, while continuing to double down on believing in Boston and working alongside those who are making decisions to invest in our downtown neighborhoods and in our city,” she said. “And others can be part of a shadowy organization that is looking to tear down the city’s progress and continue to emphasize that, from their perspective, residents should be paying more in taxes.”
Josh Kraft, the primary challenger to Wu in this year’s mayoral election, also weighed in on the BPI report Thursday and added that Wu’s tax shift plan would be “a disaster, especially for the small businesses that serve our citizens and give Boston’s neighborhood their unique character.”
“Leadership requires acknowledging hard truths, not wishing them away. It is now clear that commercial real estate values are going to continue to decline and have a negative impact on future city budgets. As mayor, I will employ a two-part strategy to address this significant fiscal challenge,” he said, describing a strategy of pro-growth policies and budget “savings.”
The Boston City Council and Wu last year unsuccessfully pushed a bill in the Legislature to shift more of the city’s property tax burden to commercial property owners. The bill cleared the House but faltered in the Senate.
City officials filed a new home rule petition on the subject in February. The House referred the bill to the Joint Committee on Revenue in March, but it’s on hold because the Senate has not made a referral.
“We continue to be available to answer any questions, although this is a proposal that’s been vetted for well over a year now. In terms of where we are in the legislative cycle, again, last [session] we came very, very close down to the very end of that legislative cycle,” Wu said Thursday when asked about her latest proposal to land on Beacon Hill. “So we’re really at the beginning of this new two-year cycle — we’re, I guess, almost a quarter of the way through it now — and urge the relief that our residents very much need.”
