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Assessors Cautious About Retail Recovery

by John Heatley, Orlando, August 2012

Good news reports are coming out on the U.S. shopping center industry. Sales, occupancies, and effective rents are increasing on a national average.


For now, assessors are taking a cautious approach in updating retail property valuations. Nevertheless, owners should continue to push for concessions to account for specific market challenges they face.


Numbers Improve


During the first week of July, retail sales were up 3% from a year earlier, according to the International Council of Shopping Centers. Traditionally, back-to-school shopping accounts for even higher sales figures during the month of August.


Meanwhile, Reis Inc. reports that occupied retail space rose by more than 2 million square feet in the second quarter. It was the third best showing since the slump in neighborhood and community shopping centers began in 2008. Effective rents inched up to $16.55 per square foot last quarter, up from $16.49 a year ago.


Scrutinize Your Valuation


While the national trends are encouraging, each retail market, and each property within the market, is unique. The best course of action is to carefully scrutinize your valuation notice. The biggest discrepancies usually deal with:


  • Above market contract rents - Assessors rarely voluntarily address properties where the leased fee value exceeds the fee simple.

  • Vacancy issues – Owners may be entitled to lease up "credit" when they have above market vacancies.

  • Tenant Improvements – Assessors usually fail to factor in tenant improvement costs in their estimate of market rent.


By correcting valuation irregularities now, retail properties will be in better shape to avoid major assessment hikes when the market experiences a pronounced turnaround.