The COVID-19 pandemic caused an immense economic decline in many sectors of the real estate industry over the past year. In this QuickTake Podcast, Amish Gupta and Tim Feagans discuss which asset classes were negatively affected the most by the pandemic and which asset classes are poised to benefit the most from a reduction in property taxes during the upcoming tax protest season.
There are asset classes that will benefit in a reduction to their property taxes from the economic slowdown created by the COVID pandemic. Hospitality assets stand to benefit the most. Select service hotels outperformed luxury brand hotels in this timeframe. Assessors are in difficult position determining where values will be set. Nonetheless, owners of hospitality assets can almost be guaranteed to see reductions in 2021 and the subsequent years.
Many jurisdictions have also been plagued by a shortfall in operating revenues. One method employed by cities and counties to offset this dilemma is to increase the millage rate to remedy their budget concerns. Assessments have the potential to be decreased factored with potential tax rate increases. While hospitality will decline in allocation of tax revenues, a well-performing asset class, such as industrial, will be over allocated in their share of tax revenues.
There are promising indicators of an economic rebound already in motion. Especially in the hospitality sector. A full recovery, however, based on multiple reports, is to be expected within the next three years. Property taxes tend to follow a reduction in property valuations. This is evident of 2020 where valuations remained consistent or increased over their 2019 valuations. 2021 will be a telling year in what to expect for significant value and property tax reductions.
Not all asset classes are as doom and gloom as the hospitality sector has been. The industrial sector has benefited the most over the past year. Thanks in large part to an explosion of online retail. This increase in demand necessitated an expansion of the logistics market. Unfortunately, a common occurrence when an asset class is at or near its peak, values increase and so will property taxes.
The office sector is in a transitional phase. Revenues have shifted down with falling occupancies. Corporations and smaller tenants are determining what the office space and environment will look like in the foreseeable future. A safe estimate on a complete rebound stretches out to five years.
The retail sector is a mixed bag of success. Many have been forced to close by prolonged shutdowns, whereas others have prospered. The retail storefront has moved online and is no longer the novelty. Physical retail space will lag and will also face a long recovery period.
To learn more about how property tax issues can affect your investing strategies, please reach out to Tim Feagans directly at email@example.com.