Correcting Over-Assessed Retail: What CFOs and Tax Directors Need to Know

By Eric Owens, Director at Swartz and Associates

Across the country, big‑box and mid‑box retail properties are being assessed at values that often have little connection to today’s market reality. Even as retailers consolidate footprints, renegotiate leases, and adapt to shifting consumer behavior, many jurisdictions continue to value these assets as if the market were frozen in time.

For owners and occupiers, the result is predictable: inflated assessments, higher tax bills, and unnecessary pressure on NOI.

But the bigger issue is this — most of these overvaluations are avoidable once you understand why they happen and how to challenge them effectively.

1. The Dark Store Debate Has Confused the Playing Field

Many assessors resist market evidence from vacant or second‑generation big‑box sales, arguing that these transactions don’t represent “market value.”

But here’s the reality:

• Most big‑box buildings are built for a single user,
• They have limited alternative uses, and
• Their resale market is dominated by second‑generation buyers, not first‑generation build‑to‑suit tenants.

Ignoring these sales leads to artificially high valuations that don’t reflect true market demand.

2. Contract Rent vs. Market Rent Is Often Misunderstood

A common issue: assessors rely on contract rent from long‑term leases rather than market rent.

For many big‑box and mid‑box stores, contract rent reflects:

• A lease signed 10–20 years ago
• A credit‑driven rate, not a real estate‑driven rate
• A structure that doesn’t match today’s market conditions

Market rent for second‑generation space is often significantly lower, especially in areas with:

• High vacancy
• Declining foot traffic
• Competition from newer retail formats

When assessors capitalize contract rent, the valuation becomes inflated by design.

3. Functional Obsolescence Is Real — and Often Ignored

Big‑box buildings age quickly. Ceiling heights, loading configurations, parking layouts, and mechanical systems often don’t match the needs of modern retailers.

Yet many assessments assume:

• Zero functional obsolescence
• Zero external obsolescence
• Zero cost to retrofit

In reality, the cost to repurpose a 50,000–150,000 sq. ft. box can be substantial — and that cost directly affects market value.

4. Comparable Sales Are Frequently Misapplied

Assessors often rely on:

• Sales of occupied, credit‑tenant stores
• Build‑to‑suit transactions
• Portfolio sales with allocation issues

These are not market indicators for fee‑simple value.

The more accurate comps are:

• Vacant or near‑vacant big‑box sales
• Second‑generation transactions
• Properties sold for alternative uses (churches, gyms, storage, etc.)

These sales tell the real story of what the market is willing to pay.

5. Cap Rates Used by Counties Are Too Low

Retail cap rates have expanded in many markets, especially for:

• Power centers
• Standalone big‑box stores
• Secondary and tertiary locations

But many counties continue to apply cap rates that reflect a different era — sometimes 100–200 basis points below current market expectations.

A low cap rate + inflated income = a valuation that’s disconnected from reality.

What CFOs and Tax Directors Can Do About It

A strong appeal strategy for big‑box and mid‑box retail should include:

• Market rent analysis using second‑generation comps
• Vacancy and downtime modeling that reflects real absorption
• Functional and external obsolescence studies
• Cap rate support from current market surveys
• Fee‑simple valuation evidence, not contract‑rent‑driven numbers
• Sales comparison grids using appropriate comps

When these elements are presented clearly, assessors often have little choice but to adjust the value.

The Bottom Line

Big‑box and mid‑box retail is one of the most commonly over‑assessed property types in the country. Not because assessors are acting in bad faith — but because the valuation models they rely on haven’t kept pace with the realities of today’s retail market.

For owners and occupiers, the opportunity is significant: correcting an inflated assessment can produce meaningful, recurring savings and immediate NOI relief. If your retail portfolio hasn’t been reviewed recently, now is the time.

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!