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Retail and Lodging Properties: Navigating the Shift in Texas CRE
Texas has long been a magnet for commercial real estate, and the retail and lodging sectors remain critical players in the state’s economy. However, these sectors are undergoing significant shifts that present both opportunities and challenges for property owners. With changing consumer behaviors, post-pandemic recovery trends, and rising operational costs, ensuring accurate property valuations—and appealing them when necessary—has never been more important.
Here’s a deep dive into what’s driving changes in the retail and lodging markets and how property owners can respond to protect their bottom lines.
The Retail Sector: Winners and Losers in a Changing Market
Texas retail properties are experiencing a two-speed recovery: while some assets thrive, others face mounting pressures. Understanding where your property fits into the market can help ensure fair property tax assessments.
Key Trends in Texas Retail
- Grocery-Anchored Centers Lead the Recovery Neighborhood retail centers anchored by grocery stores are thriving as consumers prioritize convenience and local shopping. With low vacancy rates and steady tenant demand, these assets have held their value or seen modest increases.
- Power Centers and Big-Box Retail Face Challenges Many large-format retail spaces, particularly older or poorly located properties, are struggling with tenant turnover and increased vacancies. The rise of e-commerce has intensified pressure on underperforming shopping centers, leading to rent concessions and increased operating costs.
- Experiential and Mixed-Use Retail Gaining Momentum Retail spaces that incorporate entertainment, dining, and lifestyle elements are performing well, particularly in urban centers and affluent submarkets. This includes projects like The Domain in Austin or mixed-use developments in Dallas-Fort Worth that combine retail with office, hospitality, and residential.
Challenges Facing Retail Owners
- Uneven Recovery: Underperforming retail assets face inflated appraisals based on broader market trends rather than property-specific realities.
- Rising Expenses: Higher operating costs (e.g., property insurance, maintenance, and utilities) squeeze net operating income (NOI), impacting the true value of the property.
- Obsolescence: Older retail spaces require significant investment to remain competitive, yet appraisal districts often overlook deferred maintenance costs.
Example: A suburban shopping center in Houston saw its property valuation increase by 12% despite a 15% vacancy rate and tenant concessions. By providing evidence of lower lease rates, deferred maintenance, and shifting market trends, the owner successfully reduced the assessment by 18%, saving thousands in taxes.
The Lodging Sector: A Mixed Bag of Recovery
The Texas lodging sector has rebounded from pandemic lows, but the recovery is far from uniform. Leisure travel has fueled demand in popular destinations like Austin and San Antonio, while business travel and group bookings in markets like Houston and Dallas are still lagging pre-pandemic levels.
Key Trends in Texas Lodging
- Leisure Travel Leads the Way Cities like Austin, San Antonio, and Hill Country destinations are benefiting from strong leisure travel demand. Occupancy rates and RevPAR (Revenue Per Available Room) in these markets have rebounded to near or above pre-pandemic levels.
- Business and Conference Travel Lags Major metros like Houston and Dallas-Fort Worth face challenges as corporate travel remains below pre-2020 levels. Many hotels rely on large conventions, conferences, and business travelers to generate consistent revenue, and these bookings are recovering more slowly.
- Rising Operational Costs The hospitality industry is grappling with skyrocketing labor costs, insurance premiums, and utility expenses, all of which impact NOI. However, appraisal districts often fail to account for these challenges in their valuations.
- Short-Term Rentals Add Competition The growth of platforms like Airbnb and Vrbo has increased competition, particularly for smaller and mid-tier hotels. This shift reduces occupancy rates and pricing power for traditional lodging properties.
Example: A mid-sized hotel in downtown Dallas faced a 15% valuation increase in 2023, despite declining business travel and increased operating expenses. By presenting occupancy data, RevPAR trends, and expense growth, the owner secured a 20% reduction in taxable value, aligning the assessment with actual market conditions.
The Impact on Retail and Lodging Property Taxes
Appraisal districts in Texas often rely on mass appraisals and generalized market data to determine valuations. This approach can overlook critical property-specific challenges that impact value:
- Declining NOI: Higher vacancies, tenant concessions, or rising expenses directly reduce a property’s income-producing potential.
- Market-Specific Challenges: Underperforming submarkets, tenant bankruptcies, or oversupply issues can impact a property’s competitiveness.
- Deferred Maintenance or Functional Obsolescence: Older properties that require significant investment to attract tenants or guests may be overvalued if these challenges are ignored.
Key Takeaway: Property owners must ensure their valuations reflect the real-world performance of their assets—not generic assumptions about the broader market.
How Retail and Lodging Owners Can Respond
If you own retail or lodging properties in Texas, here’s how you can proactively manage rising valuations:
- Review Financial and Operational Performance Collect updated financial statements (NOI, occupancy, rent rolls) and operating expense reports. Highlight challenges like vacancies, tenant concessions, or deferred maintenance that impact value.
- Analyze Market Trends Compare your property’s performance to local competitors and submarket conditions. Use real-world data on occupancy, lease rates, and RevPAR to demonstrate the property’s current value.
- Document Property-Specific Challenges Include evidence of deferred maintenance costs, operational inefficiencies, and tenant turnover. Highlight any capital improvements needed to remain competitive in the market.
- Challenge Inflated Comparables Ensure your property isn’t being compared to outperforming assets in premium locations or Class A properties with modern amenities.
Why Partner with FirstPointe Advisors?
Navigating the complexities of retail and lodging valuations requires expertise, data, and local market knowledge. At FirstPointe Advisors, we specialize in:
- Comprehensive Property Reviews: Identifying valuation inaccuracies by analyzing NOI, market conditions, and property-specific challenges.
- Data-Driven Appeal Strategies: Leveraging financial performance data, market comparables, and deferred maintenance evidence to build compelling cases.
- Proactive Tax Management: Helping retail and lodging owners forecast future liabilities and manage long-term tax burdens effectively.
Our proven approach has delivered significant savings for retail and hospitality clients across Texas, ensuring their properties are assessed fairly and accurately.
Protect Your Investments in 2025
As retail and lodging markets continue to shift, property owners cannot afford to overpay on their property taxes due to outdated or inaccurate valuations. By taking a proactive approach and partnering with property tax experts, you can align your assessments with reality and improve your bottom line.
Contact FirstPointe Advisors today for a complimentary property tax review and discover how much you could save.
James “Garrett” Cope
Senior Manager, Property Tax
FirstPointe Advisors, LLC
2550 Pacific Ave. Suite 700 – #7262
Dallas, TX 75226
Main: 214.253.0056
