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Alexandria’s office property values dropped 12% this year

Alexandria City Hall (staff photo by Jay Westcott)

(Updated 4:15 p.m.) Alexandria experienced a 12.4%, or $440 million, drop in office property values this year, according to the city’s Office of Real Estate Assessments, and it could mean a reduction in city services.

Alexandria’s real estate tax base grew by just .33% this year, about $200 million, for a total of $48.49 billion, which is the smallest growth in 15 years, Mayor Justin Wilson tweeted. The city’s commercial property tax rate fell 4%, or $736.9 million.

The value of the city’s office properties fell 12.38%, from $3.58 billion in 2023 to $3.14 billion in 2024, according to a city report that City Council will receive in a legislative meeting on Tuesday night (Feb. 13). It’s the second year in a row that office properties dipped in value, dropping 10% last year.

The assessments also mean that the value of Alexandria’s total residential tax base has once again outpaced its commercial tax base, with the city’s residential tax base this year increasing by 3%, or $871.3 million. The average value of a single-family home value increased by 2.33% to $962,276, and the average value of a condo in the city is $423,765, an increase of roughly 4% over last year.

“Over 90% of that growth is from new development and the rest from appreciation,” Wilson wrote.

Wilson tweeted that the decrease was in spite of $237 million in commercial growth, along with $161 million in residential multi-family development.

City Council member John Taylor Chapman says that the reduction in revenue will mean a lean fiscal year 2025 budget for City Manager Jim Parajon. His draft budget will be presented to the City Council on Tuesday, Feb. 27.

“It means for this year’s budget that we’re gonna have to look at cuts around city services,” Chapman said. “We need to continue to press on how we deal with losses in the commercial, particularly the office building, sector. We’ve converted a number of old office buildings to residential, and I think that’s something that’s going to continue.”

A city report cited that the lingering effects of the coronavirus pandemic have made commercial real property a “considerable downside risk” for the city.

According to the report:

Commercial real estate is viewed as a more predictable investment asset, unlike stocks, bonds, and other paper assets which tend to be more volatile and react swiftly to economic sentiment. While commercial real estate performance is also sensitive to economic shifts, changes typically happen slowly. Since the pandemic, however, the commercial real property has demonstrated considerable downside risk. This is particularly evident in the office market where high vacancy, inflated tenant fit-up costs, and significant increases in capitalization rates have been detrimental to values.

Due to increased interest rates and continuing uncertainty in the market, there were few arm’s-length commercial sales transactions in 2023. However, those that did occur were adequate to judge market sentiment. Three large rental apartment projects, four office buildings, and approximately sixteen general commercial properties transferred in 2023. The transactions in all property classes were a mixture of performing assets, value-add, and buildings that involve a conversion in land use.

Parajon faced a $17 million budget shortfall when he started crafting last year’s budget, but it was wiped away by unexpectedly high real estate assessments and $4.6 million in citywide efficiency reductions.

This year, the city said that there were four sales of office buildings in 2023, and that many buildings are being repurposed into multi-family rental buildings or residential condominiums.

The following offices were converted to other uses in 2023:

The following office conversions have been proposed:

 

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