Are Office Properties Over-Valued by County Assessors?
By Eric Owens, Director at Swartz and Associates
The decrease in demand for office space since the pandemic has significantly shifted the real estate landscape. Remote work and hybrid models have led to reduced office attendance, with some cities experiencing office vacancy rates increasing by as much as 13%. This decline in demand has directly impacted valuations, with the total value of office space expected to drop by an average of 26% between 2019 and 2030.
Why Are Office Spaces Overvalued?
County Assessors often rely on historical data and standardized valuation methods that may not fully account for the dramatic shifts in office space demand post-pandemic. Many offices remain overvalued because these assessments don’t immediately reflect changes in market conditions, such as increased vacancy rates or reduced rental income potential. Additionally, the lag in updating property valuations creates discrepancies between assessed values and actual market values.
This overvaluation has significant consequences, including:
- Higher Property Taxes: Property owners face inflated tax liabilities despite reduced property income.
- Challenges in Leasing or Selling: Misaligned valuations deter potential tenants or buyers.
- Distorted Government Revenues: Inflated values can create unrealistic fiscal expectations for local governments.
Case Study: Wells Fargo’s Office Property
An example of companies rightsizing their office footprints includes Wells Fargo, which sold a large office property in West Des Moines. Built in 2000, this 425,000-square-foot property located at 7001 Westown Parkway, West Des Moines, IA, was sold to WB Realty for $16,500,000 ($38/SF) in December 2023. At the time, the County valued the property at $73,239,480 ($172/SF), with a property tax liability of $2,298,800.
This overvaluation highlights the disparity:
- Assessed Value: $73,239,480
- Sold Value: $16,500,000
- Overvaluation Amount: $56,739,480
Applying an effective property tax rate of 3.142%, this overvaluation led to an excess property tax liability of $1,782,754—a striking example of the broader issue plaguing office properties.
What Can Office Property Owners Do?
For property owners navigating overvalued office spaces, engaging a local property tax advisor can be invaluable. They can assist with:
- Reviewing assessments and comparing them with current market conditions.
- Gathering evidence, such as occupancy rates and comparable sales data.
- Filing an appeal with the County and negotiating a revised valuation.
The pandemic has reshaped the office space landscape, and property owners are now grappling with the fallout of outdated valuations. As market conditions evolve, it is crucial for County Assessors to modernize their valuation practices and for property owners to advocate for fair assessments. Addressing these discrepancies will ensure valuations reflect reality, benefiting property owners and local governments alike.
Swartz + Associates, Inc. (SAI) is a full service property tax firm specializing in the review, analysis and appeals of real and business personal property tax valuations. If you need help with your property taxes, give us a call!