By Amish Gupta – COO, RETC
Commercial real estate property valuation notices have come and gone, leaving some owners and investors with a feeling of relief while others experienced sticker shock. The news is regularly reporting increased occupancy and rental rates. In fact, the Class C multifamily market’s rates are currently growing faster than Class A and Class B, signaling the confidence in the marketplace that the economy will continue to develop.
With lower cap rates and increased transactions like the multifamily market trend demonstrates, real estate values have continued to increase across all market sectors in 2013. In fact, Texas continues to be one of the leading economies in the United States, with increased interest from out-of-state investors particularly in the major metro areas of Dallas, Houston and Austin.
You might be saying to yourself, “All of the above sounds positive,” which is true, but anyone familiar with property taxes knows that a robust economy has a negative effect on property taxes. Cap rates are being driven down in the commercial real estate markets; with transactions occurring at lower cap rates as compared to 2010, this has given appraisal jurisdictions the evidence to increase values.
Based on information from our clients, the past few years have surprisingly shown that Dallas was the least aggressive on commercial properties as compared to Austin, Houston, and Fort Worth despite similar levels of market level support increases. Cumulative values based on numbers from 2011 to 2013 showed Dallas County values increased on an average of 4 percent on commercial properties. On similar properties, Houston’s Harris County was the most aggressive increasing values an average of 24 percent across all markets, while Austin’s Travis County and Fort Worth’s Tarrant County increases averaged about 13 percent.
However, Dallas owners and investors should not be overjoyed; instead, they should be on alert and start budgeting accordingly for commercial property taxes in 2014.
What does all this mean for the future? With Austin and Houston having been quite aggressive over the last couple of years, averaging double-digit growth on commercial properties, the big question is, are they setting the new norm? Should Dallas expect values to increase similarly over the next three-to-four years, or should we expect a return to average value growth?
Unfortunately, there is no clear answer. It will depend on asset type and location. Office and retail markets have remained more stable in valuation than multifamily, but they may see higher, continued levels of growth. On the other hand, jurisdictions may slow valuations on the growth of apartments, but that is yet to be seen in the marketplace.
With no true way to tell what appraisal districts have in store for the next few years, it is paramount to plan and budget for an increase in valuations.
Amish Gupta is chief operating officer of Real Estate Tax Consultants Group.