There have been rumblings recently regarding the state of the commercial real estate market. With the onset of the COVID-19 pandemic, people were forced to leave the workplace and instead work virtually, if possible.
Though going back to the office full-time is now an option for many businesses, some are satisfied with employees working from home. Experts now worry that remote work could be driving down the demand for commercial real estate.
“If these commercial landlords can’t make money, they’re going to file for … property tax relief,” said Martin Cantor, director of the Long Island Center for Socio-Economic Policy, in a phone interview. “And if they get it granted because they’re not making money, that property tax is going to be shifted to residential.”
Deputy Comptroller for New York City Rahul Jain also shed light on the topic, noting that the industrial market is doing very well right now but office markets remain questionable.
“Real estate generally pays a higher rate on the value of the property than residential does,” he said in a phone interview. “If you have a real decline in the value of that property … that means somebody else has to pick up the remainder. And so that burden could end up potentially falling on residential taxpayers.”
Phil Shwom, president of the Long Island-based industrial and commercial realtor Schacker Realty, added further context.
“We’ve seen a couple of deals where they’ve taken an office building and converted it to industrial,” he said in a phone interview. “There’s also been talk about taking down some office buildings and building residential, which I think is happening in the city, but less so on Long Island, although I wouldn’t be surprised if it does happen at some point.”
When asked if commercial property owners might consider repurposing some locations as residential developments, as Shwom said, Jain agreed that that could be a possibility.
“When you look at the economics of it, it might make sense not only on the demand side,” Jain said, referencing that there are now fewer people going to offices to work. “But on the supply side, there’s clearly some push to increase the number of housing units because housing in the metro area has always been more expensive than the rest of the country.”
Jain emphasized that the burden of commercial taxes potentially falling on residential taxpayers and the possibility for commercial spaces converting into residential development are very complex issues.
It may still be a few years until the full effects of the pandemic on commercial office spaces become evident and what domino effects may result from that.