Have BC Assessment Over-assessed Retail SpacesOne's first impression is that Commercial landlords are having difficulty collecting rents, tenants are going out of business, new tenants are difficult to obtain with the rents achieved being below the pre-Covid levels. However, Agents and Owners advise that for tenants, unaffected by COVID, the rental rates are remaining consistent. Prime locations and centres are still able to obtain rates consistent with 2020.
This makes valuation difficult for BC Assessment.
BC Assessment uses economic rent, which in effect, is the rent the landlord could get for a space on July 1, 2020. Rents that were negotiated a few years back are not relevant in the assessment process. BC Assessment advises that it has allowed for a loss of rent for 3 years and represented it in higher vacancy, lower rent or increased capitalization rate, to produce a value that is equal to a pre-COVID value less rent loss over the 3 years.
These adjustments are potentially insufficient to represent the effect of a poor market. We have noticed many properties with assessed values similar to 2020 (valuation date of July 1, 2019).
In reality, the landlords could receive lower rents for 5 years. In all probability, the rates will return to the pre-Covid levels or more upon renewal.
The value diminution, due to Covid, can be determined in several ways:
1. Adopt the lower rent, for 5 years, as appraisers would do in a discounted cash flow situation.
2. Subtract a higher vacancy rate to reflect the lower-income, for the next 5 years.
3. Increase the capitalization rate to reflect the risk of getting the pre-Covid rent.
4. Use the 2021 rent rate and keep the capitalization rates and vacancy rates stable.
In all cases, a landlord is going to lose income and the value will fall. Assessments, in many cases, should be lower.
We recommend that landlords consult a property tax consultant to discuss the potential for an appeal.