Our perspective: Chicago’s commercial real estate market still hasn’t recovered from pandemic
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Chicago’s commercial real estate market still has not recovered from the pandemic, even as many cities such as New York have bounced back. From the Chicago Tribune:
“Demand for Chicago office space kept falling in 2023, a sign that a true recovery for downtown could be years away. The drop-off comes even as some high-flying cities like New York City saw demand nearly return to 2019 levels, while tech-heavy markets on the West Coast remain stuck in the doldrums far behind Chicago, according to a new study by VTS, a New York-based software firm that tracks the number of companies checking out potential new office space.”
- That’s not surprising. Chicago’s economy was among the last major metros in the country to recover jobs lost during the pandemic. One driver? The city’s commercial property taxes, which are the second-highest in the country. At 3.78%, Chicago’s commercial property taxes are more than double the U.S. average for the largest cities in each state, a study found.
- Only Detroit has higher commercial property taxes at 4.21%, according to the study by the Lincoln Institute of Land Policy and Minnesota Center for Fiscal Excellence.
- Why? Chicago is soaking businesses – big and small alike. The study stated Detroit has a high effective commercial property tax rate on $1 million-plus commercial properties because of low property values in the struggling city, which went bankrupt in 2013. The study found Chicago’s high rate is because of high local government spending and because the tax system shifts a higher burden to businesses.
- The expert’s takeaway: "Despite the second-highest commercial property tax burden in the nation, Chicago Mayor Brandon Johnson is looking to take businesses for even more tax revenue. His most recent proposal – a $100 million "mansion tax" – would raise real estate transfer taxes on properties that sell for more than $1 million, including commercial and industrial real estate. With downtown office vacancies already at record highs and commercial real estate values plummeting in Chicago, raising taxes on downtown businesses is the opposite of what the city needs and will only exacerbate the struggles of Chicago businesses." – Bryce Hill, Illinois Policy Institute Director of Fiscal and Economic Research