US property tax analysis for CRE indicates several opportunities for appeal

The challenge evaluating CRE property taxes across the US

For most commercial properties in the United States (US), property tax represents the single largest operating cost – nearly 25% of net operating income for the average US property.

Furthermore, there are currently over 17,000 property tax districts in the US, each with its own assessment authority, legislation, and tax policy. Because of this, it can be a formidable task to assess and prioritize issues to address opportunities for appeal.

This is the challenge that Altus Group’s Research Team set out to solve, analyzing 2023 commercial property tax data in ten major US cities for our inaugural US Real Property Tax Benchmark Report 2024.

Using data from the NCREIF ODCE index, as well as Altus Group’s Reonomy data, we compared real property tax for office, retail, industrial, and multi-family properties in each of the 10 cities using the following metrics:

• Effective property tax rates: Taxes paid relative to assessed fair market value

• Sales ratios: Property tax costs as a percentage of 2023 sale prices

• Market parameters: Changes in appraisal parameters between Q1 and Q4 2023

• Benchmark taxes per square foot: Estimated taxes per square foot for a benchmark group of properties in each city

Figure 1 - Effective property tax rates – commercial

Understanding effective property tax rates

Comparing property taxes between cities or tax districts can be challenging. There may be a number of location or property-specific levies rather than one single tax rate. Some tax districts further muddy the waters with assessment factors, equalization factors, assessment caps or phase-ins.

An effective tax rate creates a common unit of measurement, dividing the total tax bill by the assessed fair market value and allows us to directly compare 2023 property tax rates between cities.

Figure 2 - The effective tax rate: A common unit of measurement to compare taxes between cities

Note: The effective tax rate is for comparison only. Variation between properties may occur as a result of location or property-specific levies, assessment phase-ins or tax capping measures.

Understanding property tax and sales price 

The sales ratio (property taxes as a percentage of sales price) is useful for measuring relative taxation. It should be noted that assessments don’t reflect the value of individual properties, but rather the general market value of that class through a mass appraisal process. Nor do those assessments always reflect “real” market value. Some cities may limit or phase in assessment increases, which can widen the discrepancy between what a property sells for an its assessed value for property tax.

To compare the 2023 rate of property tax to actual market values, we analyzed transactions of each class in each city. The actual level of taxation, based on current prices, in many cases differs widely from the expected level of taxation per effective tax rate.

The report shows that some cities like Atlanta have a fairly uniform relationship between taxes and sale prices, while cities like Chicago have a much wider range of disparity – a potential indicator that assessments are too high.

Market value trends and property taxes

Property tax assessors often rely on outdated data, contributing to discrepancies between assessed values and current market conditions. Altus Group analyzed NCREIF data for 23 of 25 ODCE funds, along with our valuation data, to bridge this gap and anticipate potential property tax shifts.

Key findings indicate declining average appraisal values per square foot for multi-family and office assets, particularly in New York City and San Francisco, while light industrial and retail property valuations showed mixed changes.

Significant discrepancies between assessed values and market trends arose. New York City and Washington DC showed increased office property assessments despite steep value declines, while Dallas’ industrial property assessments surged despite stable market valuations.

Such misalignments suggest some potential for challenging assessments. They also emphasize the need for more timely and accurate appraisal data in property tax assessments.


Want to assess where your city compares, find appeal opportunities and plan for future tax increases? Download the report here.