Portland's commercial real estate market is facing an unprecedented downturn, with the city's 20 largest office buildings losing nearly 70% of their market value since 2019. This dramatic decline is creating significant financial pressure on local governments, leading to budget cuts and a reevaluation of the city's economic future.
Data from Multnomah County reveals a stark picture: the combined market value of these key properties has fallen from $3 billion in 2019 to just $986 million today. This collapse in value is directly impacting tax revenues and forcing difficult decisions for city and school district officials.
Key Takeaways
- The market value of Portland's top 20 office buildings has dropped by over $2 billion in five years.
- Assessed property values, used for taxation, have decreased by over $300 million for the same properties.
- Slowing property tax growth is a major factor in expected budget shortfalls, including $67 million for the City of Portland.
- Property owners are increasingly appealing their tax assessments, further reducing government revenue.
- State tax laws from the 1990s are cited as a key constraint on revenue growth.
A Market in Freefall
The scale of the decline in downtown Portland's commercial property values is staggering. The post-pandemic shift to remote and hybrid work has left many office towers with high vacancy rates, causing their market worth to collapse. This isn't just a paper loss; it has tangible consequences for public services.
Jeff Renfro, an economist for Multnomah County, described the situation as shocking. "Without the pandemic, I'm not sure we would have thought these types of adjustments were even really possible," he stated, highlighting the unforeseen nature of the crisis.
The taxable, or assessed, value of these 20 properties has also seen a significant drop. In 2019, they were assessed at a combined $1.2 billion. Today, that figure stands at $890 million. This reduction directly translates to less money for schools, public safety, and infrastructure.
By the Numbers
- Total Market Value Loss: Over $2 billion since 2019
- Assessed Value Decline: $310 million
- Notable Properties: Fox Tower, Montgomery Park, Standard Insurance, and PacWest have lost a combined $170 million in taxable value.
The Ripple Effect on Public Finances
The shrinking value of commercial real estate has slowed the growth of property tax revenue, a primary funding source for local governments. According to Renfro, Multnomah County would typically see property tax revenue grow by about $20 million each year. Recently, that growth has slowed to just $8 million annually.
This revenue crunch is a key reason for budget gaps across the region. The City of Portland is preparing for a projected $67 million budget cut this summer. Similarly, Portland Public Schools is facing an estimated $50 million shortfall.
"We'd originally assumed that fiscal year 2026... would be the bottom for that decline in downtown office values. Based on some of the recent market transactions we've seen... we updated our assumption to assume we'd see another year of declines in fiscal year 2027," Renfro explained.
This suggests that the financial pressure is not expected to ease anytime soon. The county's five-year forecast does not anticipate a significant recovery in property values or the associated tax revenue.
A Surge in Tax Appeals
Compounding the problem is a sharp increase in property tax appeals. As property values fall, owners are challenging their tax assessments at a growing rate. County records show a steady rise in initial appeals from commercial, industrial, and multifamily property owners.
- 2023 Tax Year: 313 appeals
- 2024 Tax Year: 422 appeals
- Current Tax Year: 529 appeals (and counting)
Officials expect the final number of appeals for the current year could exceed 1,000 as the process continues. These appeals, which can take years to resolve, often result in refunds to property owners, further draining local government coffers. In 2023 and 2024 combined, appeals cost Multnomah County governments more than $30 million in revenue.
A Tale of Two Counties
To put Multnomah County's situation in perspective, neighboring Washington County saw only a quarter as many appeals in 2024. The resulting revenue loss in Washington County was less than $1 million, compared to the tens of millions lost in Multnomah County.
Calls for Tax System Reform
Many local leaders argue that Oregon's property tax laws, established in the 1990s, are exacerbating the current crisis. Measures 5 and 50 placed strict limits on property taxes, capping the growth of a property's assessed value at 3% per year, regardless of market fluctuations.
This system means that during boom years, tax revenue growth is artificially limited. During a downturn like the current one, revenues stagnate or fall, but costs for public services continue to rise with inflation. This creates a structural deficit that makes budgeting difficult.
The League of Oregon Cities has been advocating for legislative action to reconsider the state's tax structure. "Our biggest thing is getting the legislature to help us convene the necessary people to start talking about: what is the new property tax system," said Jenna Jones of the league last year, emphasizing the need for a system that is "adequate, fair, that's equitable for local governments and for community members alike."
However, any changes would face strong opposition and require a vote from the public, as the measures are part of the state constitution. Bill Sizemore, the author of Measure 50, remains staunchly opposed to any overhaul. "Before you go to the taxpayers and say, ‘hey, you need to pony up more money because we can't afford our budgets,’ look at the interior of your own budgets and say, ‘where are we really spending money that we really can't afford,’" Sizemore argued.
With no immediate turnaround in sight for the commercial real estate market and no easy path to tax reform, Portland's city leaders are bracing for more years of difficult financial decisions.
