The COVID-19 pandemic has brought about unprecedented changes in the way we work, causing a significant shift towards remote work for many white-collar employees. Downtown Baltimore, already grappling with various challenges like rising crime rates, high property taxes, underperforming transit systems, and job losses, has experienced the brunt of this transformation. The commercial real estate industry, which was once thriving, is now facing unexpected setbacks.
Recent sales of office properties in downtown Baltimore have raised eyebrows in the real estate community. The sale of the 30-story office tower at One South Street for $24 million was particularly shocking, considering it had traded hands for $66 million just eight years prior. Similarly, a nearby 10-story building at One East Pratt recently sold for $25 million, a staggering $55 million less than its 2018 price. These significant drops in property values have raised concerns about the future of Baltimore’s real estate market and the potential implications for the city’s tax collections.
Assessing the Impact on Tax Collections
Maryland Comptroller Brooke Lierman, the state’s chief tax collector, urges caution and perspective when evaluating the current state of downtown property values. She points out that the short-term impact on Baltimore’s tax collections, at least for the current fiscal year running through June 2024, is unlikely to be severe. Maryland conducts real estate assessments on a three-year cycle, meaning that existing properties, including downtown high-rises, won’t see an immediate drop in their tax bills due to recent low-priced sales. Many property owners may choose to hold onto their investments, anticipating a future rebound in prices.
However, Lierman acknowledges the need to delve deeper into the numbers to gauge the long-term impact on tax collections, not only in Baltimore but across the state. We expect to complete a comprehensive report on this matter in the fall.
Diversification and Economic Impact
It’s crucial to recognize that while Baltimore plays a vital role as a commercial property center in Maryland, its $1 billion in real and personal property collections represents only about 20% of the city’s revenue. Moreover, residential property values have not seen the same decline as commercial properties and may even be on the rise. These homes and condos collectively constitute about 56% of the city’s assessed property. Baltimore’s property tax dependence is also relatively lower compared to some other jurisdictions in the state, with collections averaging around $1,744 per capita, ranking sixth highest in Maryland.
What might be even more worrying is how rising empty spaces in downtown areas affect the local economy. When fewer people travel downtown for work and shopping, it affects restaurants, coffee shops, cleaning services, and hotels. This has caused more empty shops and offices, which could seriously affect jobs and the money collected in taxes.
Baltimore
In conclusion, we should not take falling downtown property values in Baltimore lightly, as they are a matter of concern. Mayor Brandon Scott and the Baltimore City Council should be prepared with contingency plans for the city’s budget if spending reductions become necessary. Additionally, it emphasizes the importance of ongoing efforts to revitalize downtown, such as the revival of Harbor Place, the renovation of Camden Yards, and continued crime reduction strategies. The future of Baltimore’s commercial real estate market may still hold opportunities for growth and recovery, but a multifaceted approach will be needed to navigate the challenges ahead.