Article
Vacancy rates impact commercial real estate assessments
May 21, 2023 · Authored by Michael Clayton
As the financial impacts of the COVID-19 pandemic linger and remote and hybrid work remains in place for many businesses, commercial real estate owners and investors face continued uncertainty to long-term lease obligations and creditworthiness — as well as new challenges in releasing vacated space.
Commercial real estate vacancy rates are an important value characteristic and can have a major impact on a property’s assessment.
When properties are overvalued, property owners and investors could potentially pursue tax refunds.
Check data behind assessed value
Assessors appraise various classes of taxable commercial property, generally grounded to the concept of market value and with the objective of assigning uniform, equitable values. Mass appraisal models can produce or miss an important value characteristic, such as high and chronic vacancy.
Properties that declined in value through increased vacancy, major tenants moving out, downsizing, or concessions that negatively affect property value often see assessments exceeding fair market value, making them excellent candidates for assessment appeals.
As pandemic restrictions end, many office and retail properties fit this definition, especially with the challenges they face with declining occupancies and rents.
For income-producing properties, a real estate tax professional can typically analyze the most recent year-end income statements and rent rolls to determine if the data supports the assessed values.
Detailed cost data is necessary for recently constructed or recently renovated properties. Closing statements for recently acquired assets are also needed as part of an analysis.
How the real property assessment process works
Real property assessment procedures can be complex.
After you receive a valuation notice from an assessment authority, a tax professional can help you:
- Read and analyze data as well as information secured from the assessment jurisdiction to determine if assessed values are fair and equitable
- Identify and quantify issues causing excessive assessed values
Related sections
The information provided here is of a general nature and is not intended to address the specific circumstances of any individual or entity. In specific circumstances, the services of a professional should be sought. Tax information, if any, contained in this communication was not intended or written to be used by any person for the purpose of avoiding penalties, nor should such information be construed as an opinion upon which any person may rely. The intended recipients of this communication and any attachments are not subject to any limitation on the disclosure of the tax treatment or tax structure of any transaction or matter that is the subject of this communication and any attachments.