Amid office market slump, tax break requests rise in downtown Boston

Fewer Boston landlords asked the city for breaks on their property taxes this year than last, but the number of owners of buildings in the city’s downtown core contesting their tax bills is back on the rise, according to data released Friday by the city of Boston.

By its Feb. 1 deadline, the city received 1,715 applications for property tax abatements for fiscal 2024, down from 1,813 last year. The city’s assessing department now has three months to review the applications.

Abatement requests “do not directly translate to liability for the city,” spokesperson Ricardo Patrón said in an emailed statement.

“This level of abatement activity is in line with expectations and will not adversely impact the city’s present revenue or our revenue forecasts,” Patrón said.

While abatement requests were down citywide, they were up in the core of downtown, where office towers help power the city’s tax base, and thus its $4.28 billion operating budget. Some 322 applications were submitted in Ward 3, which covers the West and North Ends, Government Center, the Financial District, and Chinatown. That’s up 27 percent from the 253 abatement requests submitted there last year, though down from the 419 applications in fiscal 2022.

A list of specific buildings that are seeking abatements was not available. Neither Nick Ariniello, the city’s commissioner of assessing, nor Chief Financial Officer Ashley Groffenberger were available to comment on Friday afternoon. Ariniello has previously said in a statement that the city has “not seen any indications from the real estate markets that would translate into a loss of revenue.”

The volume of property tax abatement requests has been a hotly anticipated topic in Greater Boston’s commercial real estate world, as the region continues to grapple with economic realities brought about by the COVID-19 pandemic and the resulting pivot to a hybrid work environment. The office vacancy rate in downtown is now 20.1 percent vacant, a record and up from 14.8 percent a year ago, according to recent research from brokerage Newmark.

Though the local office market has not suffered as much as other cities, such as San Francisco or New York, Boston is notably more reliant on property taxes to fund its operations than other cities of similar size. Nearly three-quarters of Boston’s $4.28 billion budget comes from property taxes, and at least one study estimates the city could see tax revenue fall $1.2 billion to $1.5 billion below prior projections over the next five years if office values decline as expected.

The city does not anticipate “instability in our revenue streams,” said Patrón, though the city is “concerned about and paying close attention to” office vacancy and its impact.

“We are closely monitoring this market and have met with downtown property owners and business leaders to explore a strategy to address the potential challenges posed if commercial values decline significantly in the near term,” Patrón’s emailed statement said.

Patrón declined to share more detail on the strategy, implementation or who the city consulted to create it. Boston Mayor Michelle Wu famously shied away from meeting with real estate leaders during her first year in office, breaking from a long-held open-door policy Boston mayors had held with the city’s real estate elite, though that has shifted somewhat in the past year.

An important piece of keeping Boston’s downtown active and vibrant is the city’s office-to-residential pilot program, Patrón’s emailed statement said. Owners of eight downtown buildings have proposed converting offices to apartments under the program, which offers landlords who convert office buildings into housing a chance to switch from a commercial property tax rate to a residential tax rate and take an additional 75 percent off that reduced rate for 29 years.

It will take some time for the impact of abatements to be seen in the city budget. The assessed value of the properties for which owners have requested abatements was not immediately clear Friday afternoon. Applications for abatement mean that property owners for 1,715 parcels disagreed with that property’s assessed value; an application does not automatically translate into a refund.

The total number of abatement applications is “a critical part” of determining the load Boston will have to bear if commercial property values drop, said Elaine Dandurand Beattie, senior strategic advisor for fiscal watchdog the Boston Municipal Research Bureau. The combined value of the properties where owners are seeking abatements is another key factor.

But another important element: the city’s budget has a reserve fund — a “buffer zone” the city can pull from to pay abatement requests if they’re deemed valid, Beattie said.

“There are lots of regulations around abatements,” Beattie said. “It’s not like this is coming out of a general fund.”

Catherine Carlock can be reached at catherine.carlock@globe.com. Follow her @bycathcarlock.