Varcoe: Shiny downtown office tower taxes dim under falling values
Article content
Look up at all of Calgary’s shiny downtown office towers the next time the sun peeks out.
For years, the skyscrapers congregated south of the Bow River have been a testament to Calgary’s impressive economic might, housing hundreds of head offices and thousands of employees, particularly in the oil and gas sector.
Today, however, the city’s office buildings are worth almost $4 billion less than they were a year ago, according to the new civic property assessment rolls released Thursday.
As energy companies have downsized, rents have fallen due to a glut of space and the downtown office vacancy rate has surged above 22 per cent.
These trends have vaporized $3.8 billion in assessed property value — the total worth of downtown offices having tumbled to $17.4 billion from $21.2 billion last year — reflecting the toll of a prolonged recession.
That drop in value will soon shake out with nasty ramifications for some property owners around the rest of the city — because when taxes paid by one of the biggest segments of the city’s economy dip, everyone else has to pick up the freight.
And so the pain will spread out into other business areas, such as suburban retail shops and commercial properties situated outside the core, where real estate prices have remained more stable.
“Suburban properties will bear the brunt of this,” warns Calgary Chamber of Commerce CEO Adam Legge. “This is the year everyone will take it on the chin pretty hard.”
Here are the broad strokes of the picture civic officials painted Thursday.
Business and residential property assessment notices are going out in the mail this week, part of an annual ritual that determines municipal taxes.
For Calgary homeowners, the average drop in their assessed values is 4 per cent, reflecting softness in the real estate market and the broader economy. While there’s some volatility in residential prices across the city, only 2 per cent of homeowners will open their bill and get jolted by a double-digit tax hike due to reassessment.
The impact is bigger, and more volatile, in the business realm.
About three-quarters of non-residential property owners will face an increase as a result of the shifting tax burden. (This has nothing to do with the city raising taxes; in fact, council has frozen taxes this year.)
The value of all non-residential property, which includes office, retail and industrial buildings, is down overall by 6 per cent.
“That decrease is not uniform,” explained acting city assessor Harvey Fairfield.
Assessments on retail properties actually increased slightly, while commercial property assessment remained flat.
However, total office assessments tumbled by a whopping 16 per cent, year over year.
“That is really related to the decrease in downtown office values,” Fairfield told reporters.
Dig into the numbers and the fallout becomes more acute.
Almost a third of assessments for non-residential property owners — more than 3,300 accounts — will rise by double digits. It’s a punch in the gut for companies already grappling with a two-year downturn.
“It’s going to be pretty significant,” says Coun. Andre Chabot. “We still collect the exact same amount (of money) and the question is how much do we collect from which properties.”
In the retail category, more than one in five properties will see their municipal taxes shoot up by at least 20 per cent.
The Chamber head understands why the dramatic shift is happening; the city can’t run deficits like senior levels of government and is stuck raising the bulk of its revenue through property taxes.
But that doesn’t make it any easier for companies to swallow.
“This is a pretty scary set of numbers,” says Legge.
The city is now developing a program that would set aside $15 million to help soften the blow for businesses facing large increases. A report is expected on the details later this month.
Richard Truscott, of the Canadian Federation of Independent Business, said the $15 million is a welcome gesture, “but to quote the movie Jaws, we’re gonna need a bigger boat.”
Legge fears a property tax spike could have a significant impact on smaller firms, forcing them to downsize, reduce investment or make other difficult decisions. That’s why the city’s new program to help ailing businesses is so important.
Ultimately, a stronger economy powered by higher commodity prices, rising real estate values and a rebound in the downtown office market will stabilize the situation.
But that’s down the road.
Amid the turmoil of lower retail sales, staff cuts, minimum wage hikes, a new carbon tax and other financial pressures, Calgary entrepreneurs will require all the help they can get in the coming months.
A higher tax bill, whatever the reason, is the last thing they need.
Chris Varcoe is a Calgary Herald columnist.
Postmedia is committed to maintaining a lively but civil forum for discussion. Please keep comments relevant and respectful. Comments may take up to an hour to appear on the site. You will receive an email if there is a reply to your comment, an update to a thread you follow or if a user you follow comments. Visit our Community Guidelines for more information.