Three Steps to More Accurate Valuations and Assessments
For many businesses, property taxes have remained quietly in the background of tax strategy and are rarely the focus unless a crisis pushes them forward. Yet, as one of the largest components of commercial real estate operating expenses for U.S. owners and tenants, property tax deserves renewed attention, especially in the current economic climate, since reducing this operating expense directly improves net operating income and, in turn, the market value of the property.
A Decade of Growth and Then a Jolt
Following the Great Recession, property tax liabilities steadily increased, tracking with economic recovery and growth through to 2020. But in the years since, the economy has undergone massive disruption. Market volatility, inflation, shifting workplace models, and fluctuating real estate values have made traditional approaches to valuation less reliable.
Navigating an Unstable Landscape
From remote work to hybrid office schedules, occupancy trends are no longer consistent, and many office buildings now operate at just a fraction of their pre-pandemic capacity. This dramatic shift has left assessors and taxpayers alike grappling with how to assign fair value to business properties.
As tax assessments become more tailored by location, industry, and usage, there’s growing opportunity for companies to challenge and potentially lower their property tax burdens. That said, success depends on a well-informed and proactive approach.
Three Essential Practices for Smarter Property Tax Assessments:
Engage Early and Often with Tax Authorities
Don’t wait for a notice in the mail. Establishing a clear, cooperative line of communication with assessors can help ensure your valuation reflects the current reality of your property use and market conditions.
Understand the Appraisal Approach Used
Valuation methods differ by property type and industry. Is your property being assessed using the cost, market, or income approach?
For industries like hospitality and retail, where income generation is key, the income method may be most appropriate.
On the other hand, manufacturers or transportation companies might require a blend of all three approaches due to operational efficiency factors.
Validate the Industry Classification and Methodology
One-size-fits-all models rarely fit well in today’s complex landscape. Misclassifying a green energy facility, for example, could result in inflated taxes due to outdated valuation models that ignore technological obsolescence and rapid depreciation. Industries like renewable energy and battery storage often demand a more nuanced valuation lens.
Keep an Eye on Occupancy Trends
Real estate tax assessments are still catching up to post-pandemic patterns. With many companies still navigating hybrid or flexible arrangements, we may not fully understand the long-term impact on valuations for several years. However, there’s no need to wait to act, especially if your facility is underutilized or has seen significant changes in function.
Adapting your property tax strategy to reflect today’s business realities can result in meaningful savings. With valuation models growing more adaptive to industry-specific challenges and economic shifts, companies that reevaluate now stand to benefit later.
To uncover savings opportunities and build a proactive commercial property tax assessment strategy tailored to your portfolio, contact Leyton’s experts today.
