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Navigating Rising Assessments in TX: How Commercial Owners Can Respond
Texas commercial real estate continues to thrive, drawing investors, developers, and businesses eager to capitalize on its pro-business environment and expanding markets. However, this growth comes at a cost: rising property valuations that often translate to higher property tax bills for commercial RE owners.
For many, the valuations being assigned don’t always reflect their property’s actual performance, market conditions, or unique challenges—leaving owners to shoulder inflated taxes. Here’s a closer look at what’s driving rising valuations and how you can respond to protect your bottom line.
The Drivers Behind Rising Property Valuations in Texas
- Explosive Market Growth Cities like Dallas-Fort Worth, Austin, Houston, and San Antonio are experiencing unprecedented demand for industrial, multi-family, and retail properties. The combination of strong job growth, a booming population, and corporate relocations has driven real estate prices upward, leading appraisal districts to assume a corresponding increase in taxable value.
- Appraisal District Mass Valuation Methods Texas appraisal districts use mass appraisal techniques to value properties, which are broad, computer-driven approaches that rely on generalized market assumptions. This method often overlooks key property-specific details like declining rental income, deferred maintenance, or increased vacancies, leading to valuations that are higher than fair market value.
- Market Lag in Challenged Asset Classes While industrial and multi-family remain strong, other sectors like office and retail are experiencing volatility:
- Office Buildings: High vacancy rates and tenant downsizing have reduced rents and property income, yet assessments often reflect outdated pre-pandemic performance.
- Retail Properties: Not all retail spaces have rebounded equally—older shopping centers, big-box spaces, and underperforming locations are struggling with stagnant demand.
Why Rising Valuations Matter for Owners
A rising valuation doesn’t always mean your property is worth more. In fact, many properties face challenges that appraisal districts may overlook:
- High Vacancy Rates: A vacant office building or retail center isn’t generating income—yet districts often assess it as if it’s 100% leased.
- Operational Costs: Rising expenses for property maintenance, insurance, or tenant improvements impact NOI (Net Operating Income) and reduce a property’s true value.
- Market Competition: An oversupply of multi-family units or industrial warehouses in certain markets can drive down rents and increase concessions.
Example: A Houston-based office property with 30% vacancy was assessed at a 12% higher value year-over-year, despite declining rental income and rising expenses. Without an appeal, the owner would have overpaid taxes by $45,000 in one year alone.
Managing Partner Brian DePotter, CCIM, CMI walks a recently renovated
office building operating at 30% vacancy while under construction in 2024
How Commercial Owners Can Respond
Rising valuations may seem inevitable, but there are clear steps commercial property owners can take to challenge inaccurate assessments and reduce tax burdens:
1. Conduct a Detailed Property Tax Review
- Start by comparing your property’s assessed value to its actual market value. Does it reflect your current NOI, occupancy rate, and expenses?
- Ensure the valuation accounts for property-specific factors like:
Deferred Maintenance: Repairs and improvements required to maintain or attract tenants. Market Conditions: Is there increased competition or oversupply in your area? Lease Terms: Are current rents lower than the market average?
Solution: FirstPointe Advisors conducts comprehensive reviews to identify errors and inconsistencies in your property’s valuation.
2. Leverage Market and Income Data to Build Your Case
Appraisal districts rely on mass-market trends, but a successful appeal uses data-driven evidence to show why your property’s assessment is inaccurate. This includes:
- Income Approach: Financials like rent rolls, operating expenses, and occupancy rates that reflect the property’s cash flow.
- Sales Comparables: Recent sales data of similar properties in your market.
- Cost Adjustments: Factoring in depreciation, obsolescence, or necessary capital improvements.
Example: A retail center in Austin appealed its valuation after providing evidence of rising vacancies and tenant concessions. The result? A 20% reduction in assessed value and significant tax savings.
3. Challenge Inaccurate Comparables
Mass appraisals often use generic comparables that don’t align with your property’s reality. For example:
- An office property in a prime business district might be compared to a struggling suburban property—or vice versa.
- A warehouse in pristine condition could be valued the same as an older, under-maintained asset.
A professional property tax consultant can analyze the district’s valuation methods and correct flawed assumptions.
Garrett Cope, Senior Manager, Property Tax
Contact FirstPointe Advisors today for a complimentary property tax review and let us help you plan ahead for success.
James “Garrett” Cope
Senior Manager, Property Tax
FirstPointe Advisors, LLC
3201 Dallas Pkwy., Suite 200
Frisco, TX 75034
Main: 214.253.0056
info@first-pointe.com
