Is a Statewide Vacancy Tax the Right Move for California’s Commercial Real Estate Market?

As California’s commercial real estate (CRE) market continues to recover from pandemic-induced disruptions, proposed legislation like Senate Bill 789 (SB 789) is raising alarm among property owners, investors, and industry advocates. Authored by Senator Caroline Menjivar of Van Nuys, SB 789 would impose a statewide vacancy tax of $5 per square foot on commercial properties that remain vacant for 182 days or more within a calendar year.

The California Business Properties Association (CBPA) has issued a strong opposition to this bill, calling it a "statewide money grab" that unfairly penalizes property owners during a time when many are already facing extended lease-up periods due to shifting market demands. According to CBPA, the proposal fails to account for real market conditions and could have unintended consequences for local governments and essential public services.

What Is the Vacancy Tax?

A vacancy tax is designed to discourage property owners from leaving buildings unoccupied by imposing a financial penalty. While well-intentioned in theory, critics argue that it doesn't always translate effectively in practice. For instance, cities like San Francisco and Oakland have already implemented similar local policies, but the results have been mixed—yielding more bureaucratic complexity than meaningful occupancy solutions.

Economic and Public Service Implications

One of the most significant concerns raised by CBPA is the risk of triggering reassessments under Proposition 8, which allows property values to be temporarily reduced during market downturns. If the vacancy tax causes market values to fall further, cities could see substantial declines in property tax revenues—jeopardizing funding for schools, infrastructure, and emergency services.

CBPA emphasizes that properties often sit vacant not because of negligence, but because of broader economic conditions and structural shifts—such as the rise of remote work, e-commerce, and evolving tenant preferences. Applying a blanket tax, they argue, only adds to the financial burden without addressing the root cause of vacancies.

Enforcement Concerns

The logistics of enforcing such a policy are also murky. Determining what qualifies as "vacant" space and managing compliance across the entire state would likely require new administrative processes and local coordination. In cities where enforcement is already strained, the added workload could result in uneven implementation—or worse, no enforcement at all.

Industry Advocacy in Action

CBPA has mobilized its network of over 10,000 members to speak out against the bill. They are urging stakeholders to contact members of the Senate Committee on Revenue and Taxation, providing pre-drafted letters and advocacy resources to make participation easy and impactful.

You can read CBPA’s full statement and access their advocacy toolkit here.

Final Thoughts

Rather than punishing property owners for market challenges beyond their control, policymakers may need to consider collaborative solutions—such as zoning reform, tax incentives for adaptive reuse, or streamlined permitting—that promote revitalization without stifling investment.

Stay informed and stay engaged. For more on how proposed legislation may affect California's commercial real estate landscape, follow updates via California Business Properties Association or reach out to your local representatives.