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A temporary shift in Boston’s tax structure would hike commercial properties’ tax bills by 17 percent in fiscal 2025 while reducing their cumulative value by $2.6 billion, according to an analysis of future real estate conditions.

Real estate industry groups are mobilizing to lobby against the proposal, unveiled by Mayor Michelle Wu in March and currently under review by the Boston City Council, to hike the commercial property tax rate for five years beyond the maximum currently allowed under state law.

“The increased tax rate will further depress commercial values and raise the risk profile to potential investors and make Boston a less attractive place to maintain and relocate small businesses, restaurants, retail shops, and offices,” Daniel Swift, a principal for tax consultants Ryan, wrote in a submission to the Boston City Council this week.

One study by the Boston Policy Institute projects a $500 million annual decline in Boston’s annual budget by 2029, as commercial property values decline amid shrinking office occupancy rates.

Subject to approval by the Boston City Council and state legislature, Wu is seeking to shift a larger portion of Boston’s split tax rate toward commercial properties. The Wu proposal would further shift the burden onto the commercial sector for five years, while cushioning likely increases in homeowners’ property taxes.

Commercial property owners face headwinds including declining office occupancy and rents, rising lab vacancies, higher construction and borrowing costs and potential new requirements to decarbonize new buildings and retrofit existing buildings.

The Ryan report characterizes Boston’s existing tax split as favorable to homeowners and burdensome to commercial landlords, and predicts economic fallout from the proposed shift.

Commercial properties already pay approximately 58 percent of Boston’s tax levy, according to Boston Municipal Research Bureau data, while comprising 33 percent of the assessed value of real estate.

Properties used as a primary residence also qualify for an exemption from the first $331,241 in assessed value. As a result, Boston’s residential tax burden is the third-lowest of the 53 largest U.S. cities, according to a 2022 analysis by The Lincoln Institute of Land Policy.

The Ryan report compares two scenarios for fiscal 2025, comparing the current tax structure with Wu’s proposal.

Under the existing system, commercial tax rates would rise 2.7 percent to $25.95 while the residential tax rate would increase 10.2 percent to $12.02.

Under Wu’s proposal, commercial tax rates would spike 17.4 percent to $29.66, while the residential tax rate would decline 7.8 percent to $10.05.

Commercial property values would decline as rising taxes, which are typically paid by tenants, discourage leasing activity throughout the various property categories, the report concluded.

After a lengthy discussion of the policy’s implications in April, the Boston City Council is set to hear additional testimony including a presentation by Swift on May 30.

Report Predicts $2.6B Drop in CRE Values from Tax Shift

by Steve Adams time to read: 2 min